RIIO-2 Final Determinations - NGET Annex (REVISED) · see Chapter 6 in this document and Chapter 10 in the Core Document. Table 4: RIIO-2 BPI performance for NGET BPI stage Final

1

RIIO-2 Final Determinations - NGET Annex (REVISED)

Publication

date

03 February 2021 Contact: RIIO Team

Team: Network Price Controls

Tel: 020 7901 7000

Email: [email protected]

Our aim for the RIIO-2 price controls is to ensure energy consumers across GB get

better value for money, better quality of service and environmentally sustainable

outcomes from their networks.

In 2019, we set out the framework for the price controls in our Sector Specific

Methodology Decisions. In December 2019, Transmission and Gas Distribution network

companies and the Electricity System Operator (ESO) submitted their business plans to

Ofgem setting out proposed expenditure for RIIO-2. We assessed these plans, engaged

with a wide range of stakeholders, and published our consultation on Draft

Determinations in July 2020.

Based on a review of all the responses to our Draft Determinations, including further

evidence received from the companies and wider stakeholders as well as a period of

further engagement including Open Hearings, this document, and others published

alongside it, set out our Final Determinations for company allowances under the RIIO-2

price control, which will commence on 1 April 2021.

Decision - RIIO-2 Final Determinations - NGET Annex (REVISED)

2

© Crown copyright 2020

The text of this document may be reproduced (excluding logos) under and in

accordance with the terms of the Open Government Licence.

Without prejudice to the generality of the terms of the Open Government Licence the

material that is reproduced must be acknowledged as Crown copyright and the

document title of this document must be specified in that acknowledgement.

Any enquiries related to the text of this publication should be sent to Ofgem at:

10 South Colonnade, Canary Wharf, London, E14 4PU. Alternatively, please call

Ofgem on 0207 901 7000.

This publication is available at www.ofgem.gov.uk. Any enquiries regarding the use

and re-use of this information resource should be sent to:

[email protected]

http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/

https://ofgemcloud.sharepoint.com/sites/PC/Shared%20Documents/Templates/www.ofgem.gov.uk

mailto:[email protected]


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Contents

1. Introduction and overall package 4

Purpose of this document 4

An overview of NGET's RIIO-2 price control 5

2. Setting outputs 10

Introduction 10

Meet the needs of consumers and network users 10

Maintain a safe and resilient network 14

Deliver an environmentally sustainable network 25

3. Setting baseline allowances 38

Introduction 38

Capital Expenditure (Capex) 40

Operational Expenditure (Opex) 60

Other costs 67

Ongoing efficiency and Real Price Effects (RPEs) 68

4. Adjusting baseline allowances for uncertainty 69

Introduction 69

ET UMs 69

Cross-sectoral UMs 76

NGET-specific UMs 81

5. Innovation 89

6. Totex Incentive Mechanism (TIM) and Business Plan Incentive (BPI) 91

Totex Incentive Mechanism 91

Stage 1 – Minimum requirements 92

Stage 2 – Consumer Value Propositions 102

Stage 3 - Low cost confidence penalty 102

Stage 4 – High cost confidence reward 102

Appendices 103

Appendix 1 : Additional Information 104

Appendix 2 : Summary of decisions – bespoke outputs 117


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1. Introduction and overall package

Purpose of this document

1.1 This document sets out our Final Determinations for the Electricity Transmission

(ET) price control (RIIO-ET2) for the areas specific to NGET, focusing on its:

• Baseline cost allowances

• Output package, including Licence Obligations (LOs), Output Delivery

Incentives (ODIs), 0F

1 and Price Control Deliverables (PCDs)

• Uncertainty Mechanisms (UMs)

• Network Innovation Allowance (NIA)

• Business Plan Incentive (BPI)

1.2 All figures are in 2018/19 prices except where otherwise stated.

1.3 This document is to be read alongside the RIIO-2 Final Determinations Core

Document (Core Document), the RIIO-2 Final Determinations – Electricity

Transmission Sector Annex (ET Annex) and the RIIO-2 Final Determinations –

NARM Annex (NARM Annex). Figure 1 sets out where you can find information

about other areas of our RIIO-2 Final Determinations.

Figure 1: RIIO-2 Final Determinations documents map

1 ODIs can be reputational (ODI-R) or financial (ODI-F).


5

An overview of NGET's RIIO-2 price control

1.4 This section focuses on bringing together the key aspects of NGET’s RIIO-2 Final

Determinations. We present a summary of NGET’s baseline Totex in Table 1. This

reflects our view of efficient costs, including ongoing efficiency over RIIO-2. For

further details of any values, please refer to Chapter 3. 1F

2

Table 1: NGET’s submitted versus allowed baseline Totex 2F

3 (£m, 2018/19)

Cost area NGET submitted

Totex (£m)

Ofgem Draft

Determinations

allowed Totex

(£m)

Ofgem Final

Determinations

allowed Totex

(£m)

Load related capex 1,115.6 891.0 1,462.9

Non-load related capex 2,650.9 744.1 1,765.8

Non-operational capex 376.9 175.4 273.5

Network operating

costs 1,174.6 549.0 723.4

Indirect opex 1,509.4 1,062.1 1,288.1

Other costs 263.0 158.0 180.0

Ongoing efficiency - -248.0 -316.5

Core Baseline Totex 7,090.3 3,331.6 5,377.2

Initial RPE allowances N/A N/A 192.9

Innovation, pass

through and other

estimated items

N/A N/A 1197.0

Modelled upfront

funding N/A N/A 6,767.1

1.5 In addition to the core baseline totex allowance of £5377.2m, we have also made

allowances for items such as the initial RPE allowances, the network innovation

allowances and the strategic innovation fund. Our financial model has also

included estimated allowances for some uncertainty mechanisms, pass through

2 Where the source document is not stated, we are referring to this document. 3 Baseline Totex refers to total controllable costs (this excludes BPI, RPEs, pass-through costs and includes ongoing efficiency).


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costs and other revenue items. This results in a total modelled upfront funding of

£6767.1m.

1.6 We have decided to set NGET’s RIIO-2 Totex Incentive Mechanism (TIM) rate at

33%. Further details on the TIM can be found in Chapter 10 in the Core

Document.

1.7 Table 2 sets out the package of outputs that will apply to NGET during RIIO-2 –

further details are contained within Chapter 2. For further details of our decisions

on the bespoke proposals submitted in NGET’s Business Plan, see Appendix 2.

Table 2: RIIO-2 outputs package for NGET

Output name Output type Applicable

to Further detail

Meeting the needs of consumers and network users

Energy Not Supplied ODI-F ET sector ET Annex, Chapter 2

Timely Connections ODI-F ET sector ET Annex, Chapter 2

SO:TO Optimisation ODI-F ET sector ET Annex, Chapter 2

Quality of Connections Survey ODI-F ET sector ET Annex, Chapter 2

New Infrastructure Stakeholder

Engagement Survey ODI-R ET sector ET Annex, Chapter 2

Network Innovation Allowance UIOLI ET, GT, GD

sectors

Core Document,

Chapter 8

Maintaining a safe and resilient network

Network Asset Risk Metric

(NARM) PCD and ODI-F

ET, GT, GD

sectors NARM Annex

Cyber Resilience OT PCD and UIOLI ET, GT, GD

sectors

Core Document,

Chapter 7

Cyber Resilience IT PCD ET, GT, GD

sectors

Core Document,

Chapter 7

Physical Security PCD ET, GT, GD

sectors Chapter 2

Network Access Policy (NAP) LO ET sector ET Annex, Chapter 2

Large Project Delivery (LPD) PCD and ODI-F ET sector ET Annex, Chapter 2

Pre-Construction Funding PCD ET Sector ET Annex, Chapter 4

Incremental Wider Works PCD ET Sector Chapters 2 and 3

Atypical Shared Infrastructure

Schemes PCD ET Sector

Chapters 2 and 3

Generation Connection Schemes PCD ET Sector Chapters 2 and 4

Demand Connection Schemes PCD ET Sector Chapters 2 and 4

Resilience and Operability PCD ET Sector Chapters 2 and 3

Substation Auxiliary

Interventions

UIOLI NGET Chapters 2 and 3


7

Output name Output type Applicable

to Further detail

Towers and Foundations PCD NGET Chapters 2 and 3

Instrument Transformers PCD NGET Chapters 2 and 3

Bay Replacements PCD NGET Chapters 2 and 3

Protection and Control PCD NGET Chapters 2 and 3

Overhead Line Replacements PCD NGET Chapters 2 and 3

Delivering an environmentally sustainable network

Environmental Action Plan and

annual environmental report ODI-R and LO

ET, GT, GD

sectors ET Annex, Chapter 2

Net Zero & Re-opener

Development Fund UIOLI

ET, GT, GD

sectors

Core Document,

Chapter 8

Environmental Scorecard ODI-F ET sector ET Annex, Chapter 2

Insulation and Interruption Gas

(IIG) leakage incentive ODI-F ET sector ET Annex, Chapter 2

Visual amenity in designated

areas provision PCD ET sector ET Annex, Chapter 2

Net Zero Carbon Construction UIOLI NGET only Chapter 2

SF6 Asset Intervention PCD NGET only Chapter 2

Operational Transport Carbon

Reduction PCD NGET only Chapter 2

1.8 We set out the UMs that will apply to NGET during RIIO-2 price control period in

Table 3. For further detail of our decision on the UMs for NGET, see Chapter 4.

Table 3: RIIO-2 Uncertainty Mechanisms package for NGET

UM name UM type Applicable to Further detail

Bad Debt Pass-through ET, GT, GD sectors Finance Annex

Business Rates Pass-through ET, GT, GD sectors Finance Annex

Ofgem Licence Fee Pass-through ET, GT, GD sectors Finance Annex

Pensions (pension scheme

established deficits) Re-opener ET, GT, GD sectors Finance Annex

Tax Review Re-opener ET, GT, GD sectors Finance Annex

Cost of debt indexation Indexation ET, GT, GD sectors Finance Annex

Cost of equity indexation Indexation ET, GT, GD sectors Finance Annex

Inflation Indexation of RAV

and Allowed Return Indexation ET, GT, GD sectors Finance Annex

Real Price Effects Indexation ET, GT, GD sectors Core Document,

Chapter 5

Cyber Resilience OT Re-opener ET, GT, GD sectors Core Document,

Chapter 7

Cyber Resilience IT Re-opener ET, GT, GD sectors Core Document,

Chapter 7


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UM name UM type Applicable to Further detail

Non-operational IT and

Telecoms Capex Re-opener ET, GT, GD sectors

Core Document,

Chapter 7

Physical Security (PSUP) Re-opener ET, GT, GD sectors Core Document,

Chapter 7

Coordinated Adjustment

Mechanism Re-opener ET, GT, GD sectors

Core Document,

Chapter 8

Net Zero Re-opener ET, GT, GD sectors Core Document,

Chapter 8

Generation and Demand

Connections Volume driver ET sector ET Annex, Chapter 4

Large Onshore Transmission

Investments (LOTI) Re-opener ET sector ET Annex, Chapter 4

Pre-Construction Funding Re-opener ET sector ET Annex, Chapter 4

Medium Sized Investment

Projects (MSIP) Re-opener ET sector ET Annex, Chapter 4

Access Reform Re-opener ET Sector ET Annex, Chapter 4

Visual amenity in designated

areas Re-opener ET sector ET Annex, Chapter 2

Opex escalator Volume driver ET sector ET Annex, Chapter 4

Incremental Wider Works Volume driver NGET only Chapter 4

Tyne Crossing Re-opener NGET only Chapter 4

Bengeworth Road GSP Re-opener NGET only Chapter 4

Substation Civil Proactive

Investment Works Re-opener NGET only Chapter 4

Towers and Foundations Re-opener NGET only Chapter 4

Optel Fibre Wrap Re-opener NGET only Chapter 4

1.9 We have decided to set £49.3m for NGET’s RIIO-2 NIA, conditional on the

implementation of an improved reporting framework. For further detail of our

decision on the NIA for NGET, see Chapter 5.

1.10 Table 4 summarises the outcome of RIIO-2 BPI performance for NGET each of the

four stages of the incentive. For further detail of our decision on the BPI for NGET,

see Chapter 6 in this document and Chapter 10 in the Core Document.

Table 4: RIIO-2 BPI performance for NGET

BPI stage Final Determination

Stage 1 - Minimum requirements Fail. -£26.9m Penalty

Stage 2 – CVP reward Not eligible

Stage 3 – Penalty -£37.3m

Stage 4 – Reward Not eligible

Total £64.1.0m Penalty


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1.11 Table 5 summarises the financing arrangements that we have decided to apply to

NGET. Please refer to the Finance Annex for more detail on these areas.

Table 5: RIIO-2 financing arrangements for NGET 3F

4

Finance parameter NGET rate Source

Notional gearing 55%

Finance Annex

Cost of Equity 4.25%

Expected outperformance 0.22%

Allowed return on equity 4.02%

Allowed return on debt 1.82%

Allowed return on capital 2.81%

4 We present here a forecast average of RIIO-2 allowed returns. Final allowances for debt and equity from 2022/2023 onwards will reflect changes in market observations. Totals may not add due to rounding. Please see Finance Annex for further detail.


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2. Setting outputs

Introduction

2.1 This Chapter sets out our decisions for each output area that will apply to NGET

and lists out all use-it-or-lose-it (UIOLI) allowances specific to NGET. It is

structured under the headings of the RIIO-2 outcomes:

• meet the needs of consumers and network users

• maintain a safe and resilient network

• deliver an environmentally sustainable network.

2.2 This Chapter does not repeat the rationale for any changes from Draft to Final

Determinations that are already set out either in the Core Document, the ET

Annex or in Chapter 3 of this document. Table 2 above sets out where further

detail on our decisions can be found.

Meet the needs of consumers and network users

2.3 This section sets out our decisions for each of NGET’s outputs related to delivering

a high-quality and reliable service to all network users and consumers, including

those in vulnerable situations, in RIIO-ET2.

Energy Not Supplied (ENS) ODI-F

Purpose: To encourage the ETOs to improve network reliability in an efficient way by

managing short-term operational risk.

Benefits: Improving the reliability of electricity supply and reducing the negative

impacts of disruption on consumers and network users.

Output Parameter Final Determination Draft

Determination

ODI Type Financial Same as FD

Incentive Type Reward/Penalty Same as FD

Performance Measure

The volume of ENS each year.

Establish an industry working group in

RIIO-ET2 to include embedded generation

Same as FD


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Output Parameter Final Determination Draft

Determination

in the calculation of the ENS performance

measure for RIIO-ET3.

Performance Target NGET: 147MWh Same as FD

Baseline Setting

Methodology

50% weighting on average ENS

performance during RIIO-ET1 (2013-2019)


performance during TPCR4 (2007-2012)


performance during TPCR3 (2000-2006)

Same as FD

Incentive value

The incentive rate is set to the Value of

Lost Load (VoLL) in 2018/19 prices

(£21,000/MWh). The financial reward or

penalty is calculated by multiplying the

difference between actual ENS and the

performance target, by VoLL and applying

the TIM sharing factor. We will consider

updating the VoLL if there is new evidence

during RIIO-ET2 that its value has changed

materially.

Same as FD

Financial Collar on

Penalties 1.9% of ex-ante base revenue

3% of ex-ante base

revenue

Reporting method Annual RRP reporting Same as FD

Applied to All ETOs Same as FD

Licence condition Special Condition 4.2 N/A

Timely Connections ODI-F

Purpose: To encourage the efficient timely delivery of connection offers to applicants

(via the ESO) for new connections to the Transmission Network.

Benefits: Higher quality of service to connection customers, improved stakeholder

engagement between connection customers and network companies, and streamlined

new connections.

Output parameter Final Determination Draft

Determination

ODI type Financial Same as FD

Incentive type Penalty only Same as FD

Performance

measure

Performance will be measured annually by the

number of offers which are timely (made within

three months, minus 13-15 working days)4F5 as a

percentage of the total number of offers

Same as FD

5 See Standard Licence Condition D4A (Obligations in relation to offers for connection etc), and Part 2, Para 4.8.1 Section D of the System Operator – Transmission Owner Code (STC).


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Determination

Performance target 100% Same as FD

Incentive value

The penalty is calculated by dividing the total

number of untimely offers, by the total number of

offers, multiplied by 0.5% ex-ante base revenue

Same as FD

Cap N/A Same as FD

Collar 0.5% of ex-ante base revenue Same as FD




SO:TO optimisation ODI-F

Purpose: A two-year trial incentive to encourage the ETOs to provide solutions to the

ESO to help reduce constraint costs according to the STCP11-4 procedures.

Benefits: A reduction in constraint costs.

Output

parameter Final Determination

Draft

Determination

ODI type Financial

We consulted on

rejecting three

bespoke

proposals from

each of the ETOs

and a joint ETO

proposal that

related to

constraint cost

mitigation in our

Draft

Determinations.

Incentive

type

Reward only during the trial period of year 1 and 2 of

RIIO-2.

Following the trial, the performance of this ODI-F will be

assessed through a report provided jointly by the TOs

and another report provided separately by the ESO. 5F

6 The

details of this performance report will be provided in the

relevant governance document, which we will aim to

consult on prior to April 2021.

The incentive could be extended to the remaining years

of RIIO-2 subject to the review of the trial.

Performance

measure

The ex-ante forecast constraint savings provided through

the solutions delivered by the ETO, as determined by the

ESO through the usual STCP11-4 processes.6F

7

Performance

target N/A

Incentive

value

10% of the forecast constraint cost savings from all

solutions provided in that regulatory year.

Cap

(annual) £5.0m

Collar N/A

Reporting

method

Annual RRP

ETOs will provide a joint report on how this ODI-F has

been utilised during the trial period. The format of this

6 Chapter 8 of the ESO annex sets out our decision for the ESO’s role within this trial ODI. 7 STCP11-4 can be found on the ESO’s website: https://www.nationalgrideso.com/document/141111/download

https://www.nationalgrideso.com/document/141111/download


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Output


Draft

Determination

report will be provided in the relevant governance

document.

The ESO will report separately on their assessment of the

benefit delivered through this ODI-F.

Applied to All ETOs

Licence

condition Special Condition 4.7

Quality of connections survey ODI-F

Purpose: To incentivise companies to improve the quality of service delivered to

connections customers.

Benefits: Improving the quality of service delivered for current and future connections

customers, thereby enabling the transition to a low carbon economy.


Determination


Incentive type Reward only in year 1

Reward and penalty in years 2-5

We did not

consult on these

aspects of the

policy in DDs. In

DD we consulted

on switching off

the incentive

whilst we pilot

the survey for

baseline

development

purposes.

Performance

measure

Measuring the satisfaction score from a scale of

1-10

Performance target 7.7/10 with a reward score cap of 9/10 and a

penalty score collar of 6.4/10

Incentive value

Reward:

0.19% of ex-ante base revenue for each score

point for year 1


point for years 2-5

Penalty:


point for years 2-5

Cap 0.25% of ex-ante base revenue for year 1

0.5% of ex-ante base revenue for years 2-5

Collar N/A for year 1

0.5% of ex-ante base revenue for years 2-5

Incentive metrics

review period

We will review the performance target, cap,

collar, and incentive value in period

Reporting method Annual RRP Same as FD

Customer scope The ETOs will survey their customers at common

milestones, as set out in DD Same as FD


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Determination

Survey provider and

assurance

The ETOs can use their own survey provider. The

User Groups will provide assurance on the

customers captured and questions asked.

Same as FD



New infrastructure stakeholder engagement survey ODI-R

Purpose: To encourage the ETOs to survey stakeholders impacted by new infrastructure

projects on their stakeholder engagement experience.

Benefits: Tailored engagement that better meets the needs of local stakeholders

impacted by transmission works.

Output


Draft

Determination

ODI type Reputational

Same as FD

Measurement Survey of stakeholders affected by new transmission

projects on stakeholder engagement process

Reporting

method

Reporting via the company’s websites, where

appropriate

Applied to All ETOs

Licence condition No

Maintain a safe and resilient network

2.4 This section sets out our decisions on each of NGET’s outputs related to delivering

a safe and resilient network that is efficient and responsive to change in RIIO-ET2.

Cyber Resilience OT and IT

2.5 Cyber resilience IT and OT outputs are not discussed in this document in the

interests of national security. A separate confidential Cyber Resilience Annex has

been provided to NGET.

Network Access Policy (NAP) LO

Purpose: To require ETOs to have in place a policy to support engagement between

themselves and the ESO around outage planning.


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Benefits: Enhanced outage planning coordination and communication between the

respective ETOs and the ESO.

Output


Draft

Determination

NAP

Pursuant to paragraph 2J.13 of Special Condition 2J -

Network Access Policy (SpC 2J) of the RIIO-1 licence, we

have decided to approve the final version of the

consolidated NAP which was submitted to us in May 2020

following some changes to the version of the NAP as

submitted to us by the ETOs as part of their business

plans7F

8

Same as FD

Reporting

requirements

for RIIO-2

ETOs should publish the KPIs on their respective websites

in a way that is accessible to users. These should be

published within two months of the end of each

Regulatory year

The KPIs should be accompanied by text explaining what

they stand for, and year-on-year changes, where

applicable

The NAP working group will govern the processes and

procedures to populate the KPIs to ensure transparency,

alignment, and comparability between the ETOs’

respective KPIs

In DDs, we

proposed to work

with the network

companies to

agree the format

of the reporting

and publication

of the KPIs ahead

of our decision in

Final

Determinations


Licence

condition Special Condition 9.10 2J

Large Project Delivery (LPD) ODI-F

Purpose: To incentivise the timely delivery of large transmission projects.

Benefits: Minimising consumer detriment from projects being delivered late.

Output


Draft

Determination


Incentive type

LPD is a combination of an ODI-F and a PCD.

To remove financial benefit from delay based on either of

the following:

• Re-profiling mechanism

• Milestone-based approach

To ensure that consumer harm caused by delay is

minimised:

• Project Delay Charge

Same as FD

8 The majority of the changes since December 2019 were made in order to add clarity and to simplify the

language of the document following engagement with and feedback from the TOs' respective stakeholders.


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Output


Draft

Determination

Performance

measure

Performance will be assessed against the delivery dates

for large (£100m+) projects, set out in licences on a

project-by-project basis

Same as FD

Performance

target

Delivery of large (£100m+) projects by the delivery dates

stated for them in the licence Same as FD

Incentive

value To be determined on a project-by-project basis Same as FD

Cap N/A N/A

Collar To be determined on a project-by-project basis Same as FD

Reporting

method

Annual RRP reporting on general progress and a specific

independent report to confirm delivery of the output Same as FD

Applied to All ET, GT, and GD companies Same as FD

Licence

condition

No – Where appropriate we will modify the licence during

the RIIO-ET2 period when we decide to apply an LPD

mechanism.

N/A

Physical Security PCD

Purpose: To ensure NGET delivers physical security upgrades at sites designated Critical

National Infrastructure (CNI).

Benefits: Allowances are returned to consumers in the event changes to the CNI list

mean NGET is not required to deliver the outputs it has received baseline funding for.

Output


Draft

Determination

Type Evaluative Same as FD

Output PSUP upgrades at specified number of sites 8F Same as FD

Delivery date End of RIIO-ET2 Same as FD

Totex

baseline

allowances

£[redacted]m Same as FD

Re-opener Yes – See Chapter 7 in the Core Document Same as FD

Reporting

method

PCD report

Annual RRP reporting. Same as FD

Adjustment

mechanism Evaluative review of completion report for each deliverable. Same as FD

Companies

applied to NGET only Same as FD

Licence

condition Special Condition 3.4 n/a


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Pre-Construction Funding (PCF) PCD

Purpose: To ensure that allowances can be adjusted downwards if there is no longer a

need for the ETO to develop one or more of these large transmission projects.

Benefits: Allows timely development of important strategic projects whilst protecting

consumers from providing PCF for speculative projects.

Output


Draft

Determination


Output

Delivery of planning consent and Final Needs Case approval

for the following projects:

• E2DC: Torness - Hawthorn Pit; Eastern subsea

HVDC link ([redacted])

• E4D3: Peterhead - Drax; Eastern subsea HVDC

link ([redacted])

• E4L5: Peterhead - South Humber; Eastern subsea

HVDC link ([redacted])

• CGNC: Creyke Beck - South Humber; new 400 kV

double circuit ([redacted])

• GWNC: South Humber - South Lincolnshire; new

400 kV double circuit ([redacted])

• TKRE: Tilbury - Grain and Tilbury - Kingsnorth

upgrade ([redacted])

• TLNO: Torness - north east England; AC onshore

reinforcement ([redacted])

• OPN2: Osbaldwick - Poppleton; new 400 kV

double circuit and relevant 275 kV upgrades

([redacted])

• SCD1: South London - south coast; new 400 kV

transmission route ([redacted])

• Norwich Main - Bramford ([redacted])

• Harker upgrade works ([redacted])

Only E2DC and

E4D3 were

included.

Delivery

date End of RIIO-ET2 Same as FD

Totex

baseline

allowances

£425.7m N/A

Re-opener

Yes – for new PCF PCDs, or where expected PCF costs are

likely to be at least double those provided in baseline

allowances.

Same as FD

Reporting

method

PCD report

Annual RRP reporting Same as FD

Adjustment

mechanism

Ex post review for partial/non-delivery, with fixed

percentages assigned to the varying degrees of delivery

status. See ET Annex for details.

Fixed percentage

proposal was not

included in DDs

Companies

applied to All ETOs Same as FD


18

Output


Draft

Determination

Licence

obligation Special Condition 3.15 n/a

Incremental Wider Works PCD

Purpose: To adjust allowances should the defined deliverables for the Incremental

Wider Works projects (IWW) are not delivered in full.

Benefits: Protects consumers from paying for works that are not delivered.

Output


Draft

Determination

Type Evaluative Same as FDs

Output

Burwell main 400kV substation (NOA code: BMM2)

Bolney and Ninfield 400kV substations (NOA code:

BNRC)

Creyke Beck to Keady route (NOA code: CBEU)

Elstree to Sundon circuit (NOA code: SER1)

Hinkley to Bridgewater route (NOA code: HBUP)

Thornton 400kV substation (NOA code: THS1)

North east region (NOA code: NEMS)

Keady – West Burton 2 circuit (NOA code: KWHW)

Bolney, Lovedean and Fleet 400kV substations (NOA

code: SEEU)

Bramford to Braintree to Rayleigh main circuit 2 (NOA

code: BRRE)

Rayleigh to Tilbury circuit 2 (NOA code: RTRE)

Turn-in of West Boldon to Hartlepool at Hawthorn pit

(NOA code: WHT1)

Modify the existing circuit that runs from Pelham to

Sundon, turning it in to connect at Wymondley

Substation. (NOA Code: WYT1)

Power control device along Blyth to Tynemouth to Blyth

to South Shields (NOA Code: NEP1)

Reconductor 13.75km of Norton to Osbaldwick number

1 400kV circuit (NOA Code: NOR2)

Power control device along North Tilbury (NOA Code:

NTP1)

Reconductor remainder of Coryton South to Tilbury

circuit (NOA Code: CTRE)

Reconductor of the double circuit that runs from

Norwich to Bramford with a higher-rated conductor

(NOA Code: NBRE)

Power control device along Blyth to Tynemouth and

Blyth to South Shields (NOA Code: NEPC)

225MVAr Mechanically Switched Capacitor (MSC) at

Pelham (NOA Code: PEM1)

All NOA “Proceed”

projects from

NOA4 and NOA5

under £100m


19

Output


Draft

Determination

225MVAr Mechanically Switched Capacitor (MSC) at

Pelham (NOA Code: PEM2)

2 x 225MVAr Mechanically Switched Capacitor (MSC) at

Rye House (NOA Code: RHM1 & RHM 2)

Elstree to Sundon 2 circuit turn-in and reconductoring

(NOA Code: SER2)

Drax to Thornton 2 circuit thermal uprating and

equipment upgrade (hotwiring) (NOA Code: TDH2)

Delivery date 31st March 2026 Same as FDs

Totex

baseline

allowances

£332.85m £522.3m

Re-opener IWW volume driver and MSIP re-opener. See Chapter 4.

MSIP is same as

FD. IWW is new

at FDs.

Reporting

method RRP Same as FD

Adjustment

mechanism

Evaluative review of completion report for each

deliverable. Same as FD

Companies

applied to NGET Same as FDs

Licence

condition Special Condition 3.9 N/A

Generation Connection Schemes

Purpose: To adjust allowances should the defined deliverables for these Generation

Connection schemes, not covered by the volume driver, not be delivered in full.


Output


Draft

Determination


Output

NGT20089 – The project will connect >3000MW of

generation in two stages.

We consulted on

PCD proposals in

table 38 of the

NGET annex in

our Draft

Determinations.

Delivery date Specified in the licence Same as FDs

Totex

baseline

allowances

Confidential – will be finalised in Licence Same as FDs


20

Output


Draft

Determination

Re-opener No specific Reopener Same as FDs

Reporting

method RRP

Same as FDs

Adjustment

mechanism


deliverable.

Same as FDs

Companies


Licence


Demand Connection Schemes

Purpose: To adjust allowances should the defined deliverables for these Demand

Connection Schemes, not covered by the volume driver, not be delivered in full.


Output


Draft

Determination


Output No PCDs

We consulted on

PCD proposals in

table 39 of the

NGET annex in

our Draft

Determinations

Delivery date Same as FDs

Totex

baseline

allowances

Confidential – will be finalised in Licence Same as FDs

Re-opener No specific reopener Same as FDs

Reporting

method RRP

Same as FDs

Adjustment

mechanism


deliverable.

Same as FDs

Companies


Licence


Substation Auxiliary Interventions UIOLI

Purpose: To ensure any unused funding for replacing NGET’s Standby Diesel Generators

and LVAC Boards is returned to the consumer.


21

Benefits: Protects consumers from overpaying for works which are costed inaccurately

or for works which are not delivered.


Determination

Type UIOLI We proposed to

reject all works

which were listed

in a 5-10 year

replacement

windows as we

had limited

confidence that

all works

proposed by

NGET would be

required.

Output Standby Diesel Generator and LVAC board

replacement.

Delivery date 30th March 2026

Totex baseline allowances £31m

Re-opener No

Reporting method RRP

Adjustment mechanism UIOLI

Companies applied to NGET

Licence condition Special condition 3.28

Instrument Transformers PCD

Purpose: To ensure allowances are adjusted down if NGET does not deliver in full the

replacement of instrument transformers based on the following drivers: PCB-filled,

Dissolved Gas Analysis (DGA) condition, SF6 leakage and asset family issues.

Benefits: Protects consumers from paying for works which are not delivered.

Output


Draft

Determination

Type Mechanistic

We proposed to

reject NGET’s

request for assets

listed in a 5-10

year replacement

window. We note

that NGET had an

error in its

submission

regarding PCB

filled assets.

Output

A specific list of assets to be replaced based on drivers

including PCB filled, DGA condition, and SF6 leakage. A

volume of assets to be replaced for asset family issues.

Delivery date 31st March 2026

Totex baseline

allowances £39.57m

Re-opener No

Reporting

method RRP

Adjustment

mechanism

At the end of the T2 period will review NGET IT delivery.

If there is any under-delivery we will undertake

following:

• For defined assets on the specific replacement

list, a deduction based on the individual unit

type and voltage will be made, based on

volume not delivered and the associated unit

cost.


22

Output


Draft

Determination

• For family-based instrument transformers, we

will use an average unit cost.

• Any delivered units will be subject to TIM

adjustments.

• There is no upward adjustment factor.

Companies

applied to NGET

Licence

condition Special Condition 3.24

Switchgear Other (Bays) PCD


intervention of switchgear other (Bay) assets.



Determination

Type Mechanistic

No PCD

proposed

Output

[redacted] bay assets including:

Refurbishment of Disconnectors and Earth

Switches at 400kV, 275kV and 132kV;

Replacement of 132kV Disconnectors and

earth switches;

Replacement of surge arrestors at different

voltages.


Totex baseline allowances £59.89m

Re-opener No

Reporting method RRP

Adjustment mechanism

At the end of the T2 period we will review

the delivery of all Switchgear Other (Bay)

assets. If there is any under-delivery we will

undertake following:

• Allowance minus volumes not

delivered. This will be broken into

5 categories, with the deduction

based on volume not delivered in

each category and the associated

unit cost.

• The categories are based on

close/common costs to minimize

reporting issues.

• There is no upward adjustment

factor.


23


Determination


Licence obligation Special Condition 3.25

Protection and Control PCD

Purpose: To ensure allowances are adjusted down if NGET does not deliver in full

certain Protection and Control works.



Determination

Type Mechanistic

No PCD

proposed

Output

A defined number and intervention types for

Protection and Control replacement and

refurbishment


Totex baseline

allowances £337.95m

Re-opener No

Reporting method PCD report plus RRP

Adjustment

mechanism

At the end of the T2 period we will review NGETs

P&C interventions. If there is any under delivery,

we will undertake following:

• NGET have 25 individual asset

categories and associated

interventions. The PCD will reference

the individual asset type and

associated intervention with a volume

and associated unit cost. Please note,

there are no specific named assets

within the PCD.

• We have desegregated the

refurbishment and replacement

activities to ensure that there are no

windfall gains from alterations to

delivery. We note that if NGET find

they are required to deliver a

replacement, the refurbishment scope

will have been exceeded, therefore no

funding recovery would take place in

that circumstance.

• Where a volume is not delivered as

planned, the PCD will result in the

recovery of the funding associated

with those works based on the volume


24


Determination

not delivered and the associated unit

cost.

• There is no upward adjustment factor.



Overhead Lines Conductor Replacement PCD


replacement of [redacted]km of Aluminium Steel Core Reinforced (ACSR) Core Greased

Conductors and [redacted]km of Aluminium Composite Core Conductor (ACCC).



Determination

Type Mechanistic

No PCD

proposed

Output Replacement of [redacted]km of ASCR Core

Greased Conductor, [redacted]km of ACCC

Delivery date 28th Feb 2026

Totex baseline

allowances £372m

Re-opener No

Reporting method RRP and PCD Report

Adjustment

mechanism

At the end of the T2 period we will review

NGETs delivery of Conductor replacement. If

there is any under-delivery we will undertake

following:

• For under delivery of either types of

conductor this will be deducted from

NGET at the cost assessed unit rate

for conductor replacement which has

been approved by our cost

assessment.

• There is no upward adjustment

factor.




25

Deliver an environmentally sustainable network

2.6 This section sets out our decisions for each of NGET’s outputs related to enabling

the transition towards a smart, flexible, low cost and low carbon energy system

for all consumers and network users in RIIO-ET2.

Environmental Action Plan (EAP) and annual environmental report (AER)

Purpose: To ensure that the ETOs take responsibility for the environmental impacts

arising from their networks and are more transparent in what they are doing to mitigate

these.

Benefits: These mechanisms will support cross-sector consistency and greater

environmental ambition from the companies.

ODI-R on business carbon footprint (BCF) reduction target

Output parameter Final Determinations Draft Determinations

ODI type

To set a common reputational

incentive for NGET on their

respective BCF reduction targets

Same as FD

Measurement

NGET's BCF comprising scope 1 and

2 emissions excluding electricity

losses (based on GHG Protocol

Corporate Standard) measured in

tonnes of carbon dioxide equivalent

emissions (tCO2e)

BCF reduction targets

proposed by licensees in

their EAPs

Performance target

NGET's BCF reduction target for the

end of RIIO-2 (interpolated from

each licensee’s science-based9F

9

target validated by the SBTi)

Same as FD

Reporting method Annual RRP reporting and the AER Same as FD


Licence condition N/A N/A

9 For more information on the Science Based Target Initiative: https://sciencebasedtargets.org/about-us#who-we-are

https://sciencebasedtargets.org/about-us#who-we-are

https://sciencebasedtargets.org/about-us#who-we-are


26

NGET’s EAP commitments10F

10


Determination

EAP commitments

We are accepting all NGET’s EAP commitments (that

are not also a bespoke LO, PCD, ODI or UM) for:

• BCF reduction and related initiatives

• Sustainable resource use, recycling and

reducing waste

• Reducing pollution to the local environment

• Enhancing biodiversity and natural capital

Same as FD

Measurement Milestones and metrics as specified in the licensee’s

EAP11F11 Same as FD

Performance target Targets as specified by the licensee in its EAP Same as FD

Reporting method AER Same as FD

Applied to All ET sector companies Same as FD

Licence condition N/A N/A

AER Licence Obligation

Output


Draft

Determination

Licence

obligation

New requirement for the licensee to report in its AER

on its progress against its EAP commitments, relevant

ODIs, PCDs, UMs and to provide an update on the

environmental impact of its network.

Same as FD


Licence condition Special Condition 9.1 Same as FD

Environmental Scorecard ODI-F

Purpose: To incentivise NGET to outperform the RIIO-2 targets set out in its EAP.

Benefits: NGET will further reduce carbon emissions, improve the local environment,

and reduce resource use for the benefit of existing and future consumers.

10 ‘EAP commitments’ is the term we have given to the initiatives that the ETOs included in their respective EAPs to improve their environmental performance that were not otherwise specified as one of the components in the RIIO-2 output framework described in Chapter 4 of the FD Core Document, i.e. licence obligations, price control deliverables or output delivery incentives. EAP commitments will have a formal status in the reporting guidance that we are developing for the AER. 11 NGET's EAP, https://www.nationalgrid.com/uk/electricity-transmission/document/131996/download

https://www.nationalgrid.com/uk/electricity-transmission/document/131996/download


27

Final Determination

Output


Draft

Determination


Incentive type Reward and penalty Same as FD

Performance

measure

Percentage change in the following impact areas:

• Business mileage emissions

• Office and operational waste recycling

• Office waste reduction

• Office water use reduction

• Environmental value of non-operational land

• Biodiversity net gain on new network projects

Additional

measure for

operational

transport

emissions

Performance

target

Annual reward and penalty thresholds are set out in

Appendix 1 for impact areas a) to f). Same as FD

Incentive value

Incentive is calculated by comparing actual percentage

change in impact areas to annual performance

reward/penalty thresholds. If actual percentage change

is above or below relevant threshold, NGET will receive a

reward or a penalty. There is no reward or penalty if the

actual percentage change is between the first penalty

threshold and the first reward threshold.

Incentive rates are based on the economic value of

percentage change in each impact area calculated at the

threshold (see Appendix 1 for information on economic

values used to set incentives).

TIM is applied to overall payment.

We consulted on

two options for

calibrating

incentive rates:

a) Economic

value of

impact

b) Cost plus

approach

Cap Circa £4.0m p.a. (before TIM) Same as FD

Collar Circa -£4.0m p.a. (before TIM) Same as FD

Reporting

method Annual RRP reporting and AER Same as FD

Applied to All ETOs

We proposed

that the ODI-F

would only apply

to NGET – see ET

Annex Chapter 2

for further

information.

Licence

condition Special condition 4.6 N/A

Final determination decision rationale and summary of consultation responses

2.7 We have decided to implement our DD proposal on an Environmental Scorecard

ODI-F, with some modifications to the proposal in NGET’s BP.

2.8 We received responses on the ODI-F and our proposed modifications from two

network companies, a user group, an advisor to government on the natural


28

environment, and a consumer group. All five stakeholders agreed that the ODI-F

should be in the interests of consumers if it encourages NGET to deliver beyond

the commitments in their EAP. However, three stakeholders noted that it is

important that incentives are proportionate to the outcomes achieved and do not

double up on other potential policy interventions and the benefits of lower

operational costs.

2.9 Four stakeholders also supported our proposal to re-calibrate incentives for each

impact area, with a preference for setting these as the value of the environmental

benefit rather than on an abatement cost plus margin approach. This is because

the former would ensure rewards reflect the benefits of NGET’s actions and are

more aligned with stakeholders’ priorities.

2.10 NGET preferred its proposal for a single incentive, covering all scorecard areas,

because they consider it reflects their stakeholders’ preferences, provides a

stronger focus, and avoids having to calculate separate incentives for each impact

area. NGET also highlighted that if we decide to adopt an individual incentive rate

for each impact area that it would be unnecessary to weight the areas of waste

recycling, waste reduction, and water use, as we proposed, because the incentive

rate would reflect the value of benefit/disbenefit.

2.11 Three stakeholders also supported our DD proposal to re-state the measure of

alternative fuel/electric vehicle conversion of the operational fleet to a measure on

reducing operational fleet emissions. This is because the latter is a better indicator

of environmental impact and would also equalise incentives across the different

ways of reducing fleet emissions.

2.12 Having considered responses on the ODI-F, we were minded to adopt a measure

of operational fleet emissions reduction in the ODI-F rather than a measure of

conversion to alternative fuel vehicles. In our follow up engagement with NGET on

the information needed to make this change, NGET said that there would be a

small risk to applying a financial incentive to fleet emissions because a small

proportion of these are outside of its control, i.e. personal use of vehicles by

employees. They wanted to retain the measure on the conversion of fleet to

alternative fuel/electric vehicles.

2.13 However, we do not think it is appropriate to incentivise an ‘input’ in the

environmental scorecard. As highlighted by stakeholders, we think there is greater


29

merit in setting an incentive to promote different ways of reducing fleet emissions.

We also consider there could be issues of overlapping policy interventions,

particularly with respect to the uptake of electric vehicles. Therefore, we have

decided not to include this impact area in NGET’s Environmental Scorecard ODI-F.

As a result, the ODI-F will cover only six categories instead of the seven that we

consulted on in DD.

2.14 We have also decided to adopt an individual incentive rate for each impact area as

set out in Appendix 1. The incentive rates for the first five areas listed in the

Environmental Scorecard ODI-F table are based on an estimate of the economic

value of the change in the impact area. This is our preferred option because the

rates reflect the value of the environmental benefit and incentivise different ways

of achieving the environmental benefit. The incentive rate for the sixth impact

area, biodiversity net gain on new projects, will be based on the replacement cost

plus a 10% margin. We consider that this is a pragmatic option because of the

significant challenges of monetising biodiversity gain, which would include its non-

use value, as well as its direct use value.12F12

2.15 We have decided not to apply any weighting to the waste and water impact areas

that we highlighted in DD. We agree with NGET that this is unnecessary because

individual incentive rate based on an estimate of the economic value of the

environmental benefit will eliminate the concern about excessive rewards.

Insulation and interruption gas (IIG) leakage ODI-F

Purpose: To incentivise a reduction in leakage of SF6 and other IIGs from assets on the

transmission network, and to support the transition to low greenhouse gas alternative

IIGs.

Benefits: Reduction in the volume of harmful leakage of greenhouse gas emissions from

GB’s Electricity Transmission network.

12 Non-use value is the value that is not associated with human use, either direct or indirect, of the environment, its resources or services. Direct use value includes the ways in which biodiversity is used or consumed by humans eg food provision or carbon sequestration, as well as the way it contributes to well-being of human through recreation, aesthetic appreciation.


30

Final Determination

Output parameter Decision Draft

Determination

ODI type Financial Same as FD.

Decided at SSMD.

Incentive type Reward and penalty Same as FD.

Decided at SSMD.

Performance

measure

IIG emissions leakage below the annual target

are rewarded, with a penalty applied for

emissions leakage above the target.

Same as FD.

Decided at SSMD.

Performance target

• The baseline tCO2e target for year 1

of RIIO-ET2 will be calculated from

multiplying NGET’s IIG inventory at

the end of RIIO-ET1 by the IIG

Baseline Leakage Rate which has a

value of 1.18% (the average leakage

rate from 2013-20 with a 10%

improvement factor) and by the

tCO2e conversion factor.

• Baseline tCO2e targets for years 2

and 5 of RIIO-ET2 will be the year 1

baseline tCO2e target adjusted for

the forecast abatement of

interventions approved through the

Defined SF6 Asset Interventions

funded in baseline, the MSIP or Net

Zero reopeners, asset disposals and

justified IIG asset additions.

We proposed to

apply a 15%

improvement

factor to the

average leakage

rate from 2013-20

that is used to set

the baseline

tCO2e target for

year 1. See

Chapter 2 of ET

Annex.

Incentive value

• Reward/penalty calculated by

multiplying the value of CO2

equivalent (using the Non-Traded

Carbon price), for every ton over or

below the target.

• TIM is applied to the calculated

annual incentive.

Same as FD

Cap N/A – Incentive value is based on the central

estimate of the Non-Traded Carbon Price. N/A

Collar N/A N/A




Visual amenity in designated areas

Purpose: To fund mitigation projects that reduce the visual amenity impacts of existing

infrastructure in National Parks, Areas of Outstanding Natural Beauty and National

Scenic Areas.


31

Benefits: To restore the quality of visual amenity in National Parks, Areas of

Outstanding Natural Beauty and National Scenic Areas for the enjoyment of current and

future consumers.

Final Determination

UM


Draft

Determination

UM type Re-opener Same as FD

Re-opener

window Any time during the price control Same as FD

Re-opener

materiality

threshold

Projects that reduce the impacts of existing transmission

infrastructure on the visual amenity of National Parks,

Areas of Outstanding Natural Beauty and National Scenic

Areas

Same as FD

Authority

triggered re-

opener?

No Same as FD

Additional

requirements

Total expenditure cap of £465m in 2018-19 prices for all

TOs’ RIIO-ET2 mitigation projects. Expenditure cap

includes £7.5m UIOLI allowance per TO for projects that

utilise landscaping and environmental enhancement to

mitigate visual impacts of existing infrastructure.

Same as FD


Licence


Net Zero & Re-opener Development UIOLI

Purpose: To enable network companies to fund early design and pre-construction work.

It also allows GD and GT to undertake small Net Zero facilitation projects.

Benefits: Ensures that network companies are equipped to deal with the Net Zero

challenge, and can act quickly to changing demands on the energy system and support

quicker project delivery.

Parameter Final Determination Draft

Determination

Type Mechanistic This UIOLI

allowance was

not proposed in

our Draft

Determinations.

Output

No specific outputs set – A use-it-or-lose-it

(UIOLI) allowance that should be spent in

accordance with the Net Zero and Re-opener

Development Fund governance document.

Delivery date 31 Mar 2026


32


Determination

Totex baseline

allowances13F

13 £16m

Re-opener No

Reporting method

Annual RRP reporting, alongside reporting

requirements for individual projects set out in

the forthcoming Governance Document

Adjustment mechanism Formula defined in the licence

Companies applied to All ET, GT and GD companies


Net Zero Carbon Construction UIOLI

Purpose: To fund net zero carbon emissions on capital construction projects and claw

back any unused funding.

Benefits: To meet stakeholder expectations to achieve net zero capital carbon and

ensure consumers only pay for actually offset emissions.

Final Determination

Output parameter Decision Draft Determination

Output

Offset residual emissions to achieve Net

Zero carbon emissions on capital projects

in RIIO-ET2 Year 5

Same as FD

Delivery date 31st March 2026 Same as FD

Totex baseline allowances £2.5m Same as FD

Re-opener No Same as FD


Adjustment mechanism UIOLI Same as FD

Companies applied to NGET Same as FD


Final Determination rationale and Draft Determination responses

2.16 We have decided to set a £2.5m UIOLI allowance for NGET to offset carbon

emissions on capital construction projects in order to achieve net zero emissions in

Year 5 of RIIO-ET2.

13 Figures have been rounded down


33

2.17 We received two responses to our Draft Determination proposals, from NGET and

a consumer group. NGET supported our Draft Determination and clarified that the

allowance was only for construction projects in Year 5 of the price control, while

the consumer group broadly supported the proposal provided it has stakeholder

support and efficiently achieves its aim. We are satisfied that achieving net zero

emissions on construction projects meets NGET’s stakeholders’ expectations. We

will assess whether NGET has achieved this goal efficiently as part of RIIO-ET2

close out.

2.18 In our Draft Determination, we proposed attaching this allowance to a PCD.

Following further consideration and discussion at a working group, we no longer

consider this appropriate as it would be inconsistent with our treatment of other

UIOLI allowances, which do not have associated PCDs. We have instead decided

set a UIOLI allowance without a PCD for this activity, and UIOLI mechanism

whereby any unused allowance is returned to consumers remains the same.

SF6 Asset Intervention PCD and re-opener

Purpose: To hold NGET to account for the funding of a large-scale intervention

programme for badly leaking assets containing SF6. The programme aims to reduce the

direct network emissions of SF6 over RIIO-2.

Benefits: To enable the reduction of the volume of harmful leakage of greenhouse gas

emissions from NGET's network, and to facilitate progress towards its long-term

commitment of Net Zero emissions.

Final Determination


Determination

Type Evaluative PCD and Re-opener Evaluative PCD

Output Delivery of site-specific interventions on

assets containing SF6, set out in Table 6. We consulted on

setting a PCD

based on works to

achieve a 33%

reduction in

annual SF6

emissions by the

Delivery date Site-specific delivery dates, set out in Table

6

Totex baseline

allowances

£87.14m for site-specific works set out in

Table 6

Reporting method PCD report & annual RRP


34


Determination

Adjustment mechanism

PCD: an ex-post review to determine

outputs delivered, with deductions applied

for site specific interventions not delivered.

Re-opener: Authority and ETO triggered

adjustment mechanisms

end of RIIO-2,

subject to NGET

providing a well-

justified SF6 asset

intervention

programme plan

ahead of

September 2020.

Re-opener window January 2022, 2023 and 2024 N/A

Re-opener materiality

threshold

0.5% of average annual ex-ante base

revenue N/A

Authority triggered re-

opener? Both Authority and NGET N/A

Additional requirements

Re-opener can only be triggered where there

has been a material change in circumstances

in the site-specific outputs, including NGET

seeking to use alternative IIGs (not SF6), to

retro-fill or replace assets.

N/A



Table 6: Site-Specific Asset Interventions

Site Output Delivery Year

Osbaldwick Gas Insulated Busbar (GIB) Refurbishment 2022

Eaton Socon Targeted Refurbishment 2024

Eggborough Targeted Refurbishment 2023

Rassau Gas Insulated Switchgear (GIS)/GIB

Refurbishment/Resealing 2023

Dinorwig Targeted Repair 2022

Northfleet East GIS/GIB Refurbishment 2025

Lackenby GIB Refurbishment 2024

Littlebrook GIB Refurbishment 2024

Sizewell Targeted repair in T2 (replace in T3) 2026

Norton GIB Refurbishment 2025

Final Determinations rationale and Draft Determination responses

2.19 We received two responses in this area. One consumer body supported the

bespoke measure, provided it is not administratively costly, had sufficient

stakeholder support and measurable environmental benefits. We also received a

response from NGET, outlining its asset intervention plan for the PCD and funding


35

request of £657.19m14F

14. This would allow an abatement of approximately 16,000kg

of SF6 by 2026, to allow NGET to achieve a 33% reduction in emissions compared

to the 2018/19 baseline, and to address an expected increase in network

emissions during the RIIO-ET2 period.

2.20 The asset intervention plan and associated evidence provided by NGET does not

sufficiently demonstrate well-justified and cost-efficient plans for the full 33%

emission reduction target. However, we consider NGET has demonstrated the

challenge of addressing the harmful emissions from ageing SF6 assets on its

network, and the need for intervention, in order to make significant progress

toward its SBT during RIIO-ET2. We have therefore decided to provide baseline

funding of £87m (excluding indirect opex and with a 5% efficiency challenge to

NGET’s requested costs) for interventions at 10 sites as set out in Table 6, which

are in imminent need of intervention. We will track the emissions abatement for

these sites against expected levels of abatement when considering potential PCD

adjustments. We will also seek to ensure that funded sites and their expected

levels of abatement are considered under the IIG leakage incentive, to reduce the

risk of overlap.

2.21 We have also decided to approve funding of £2.74m for palliative works, funded

as Network Operating Costs (see Chapter 3). We are satisfied that NGET

demonstrated in its asset intervention plan, that funding at these sites at this level

will be efficient.

2.22 We have not approved NGET’s full request to fund ‘flexible interventions’ under

the PCD. We recognise the urgency to continue the works to reduce SF6 leakage,

however, in our view, NGET has not demonstrated the most efficient approach to

both short- and long-term SF6 leakage abatement. Although leak abatement

efforts have improved, it is not guaranteed that the leaks will not return in future.

NGET needs to develop an asset intervention plan that focuses on achieving the

long-term goal of reducing the inventory of SF6 on its network. This does not

exclude asset interventions to abate significant leaks, but it does require NGET to

provide a more assured long-term investment.

2.23 Although we have provided baseline funding to allow imminent work of

environmental importance to go ahead, there remains some uncertainty in the

14 This included asset interventions at a number of fixed and palliative sites and flexible interventions.


36

costs and outputs. Therefore, we have decided to introduce a re-opener, which

follows the default parameters for re-openers set out in the Core Document, to

adjust the baseline funding and deliverables for this area of work in the event of

material changes in circumstances.

2.24 To facilitate further network investment required to abate harmful SF6 emissions

we have added SF6 abatement as a potential trigger under the MSIP reopener

(see Chapter 4 of the ET Annex). This re-opener will also be available to SPT and

SHET. We expect the ETOs to have investigated and include in any submission

under the re-opener, analysis of the following:

• Modelling of short- and long-term leakage rates for SF6 assets

• Scenario analysis to identify candidates which would benefit from SF6

repair/refurbishment works

• Scenario analysis to identify candidates which would benefit from SF6

replacement works

• Analysis to identify candidate assets for retro-fill with an SF6 alternative.

These will inform:

○ A short-term (RIIO-ET2) strategy and associated cost

○ A long-term multi-regulatory period strategy and associated cost.

2.25 The Net Zero re-opener outlines several specific triggers which are defined as a

Net Zero Development. This could potentially include the successful trial of new

technologies, such as those using alternative-SF6 IIGs, or other technological

advances, which do not fit under the MSIP reopener. If Ofgem considers a

relevant Net Zero Development is likely to occur, we may request submissions

from TOs in this area.

Reducing carbon emissions from operational transport PCD

Purpose: To hold NGET to account to deliver the volume of Electric Vehicles (EVs) and

charging infrastructure it has been funded for during RIIO-ET2.

Benefits: Reduced carbon emissions from operational transport.


37

Final Determination


Determination


Output

Purchase 499 EVs

Install 1430 standard charge points

Install 40 direct current charge points

Same as FD

Delivery date 31st March 2026 Same as FD

Totex baseline allowances £22.61m Same as FD

Re-opener No Same as FD

Reporting method PCD report

Annual RRP reporting Same as FD

Adjustment mechanism Ex post review to determine delivery status Same as FD



Final Determinations rationale and Draft Determination responses

2.26 We received four responses on our Draft Determinations on EVs and charging

infrastructure, most of which were supportive of our proposal to set a PCD for

these costs. A consumer group sought clarification that the needs case had been

fully justified, and another response suggested opening the provision of charging

infrastructure up to competition.

2.27 We have set a £22.835m PCD for these costs, and NGET will be required to

proceed with the scope of the PCD as set out in Draft Determinations.

2.28 In response to the points raised, we are satisfied that the needs case for all

charging points has been justified and consider it appropriate that NGET installs

the charging infrastructure itself given the nascent nature of the industry and to

NGET’s immediate operational requirements.


38

3. Setting baseline allowances

Introduction

3.1 This chapter sets out our decision on baseline Totex allowances for the different

cost areas within NGET’s BP submission. We have set baseline Totex allowances

for NGET only where we are satisfied of the need for and certainty of the proposed

work, and where there is sufficient certainty of the efficient cost of the work.

3.2 Table 7 below sets out the RIIO-ET2 Totex allowances for NGET, grouped by the

main cost categories within the business plan data templates (BPDT).

Table 7: NGET Totex components

Totex category15F

15 NGET proposed

baseline (£m)

Ofgem DD

baseline (£m)

Ofgem FD

baseline (£m)

Load related capex 1115.6 891.016F

16 1462.917F

17

Non-load related capex 2650.9 744.118F

18 1765.819F

19

Non-op capex 376.9 175.4 273.5

Network operating costs 1174.6 549.0 723.4

Indirect costs 1509.4 1062.1 1288.1

Other Costs 263.0 158.0 180.0

Ongoing efficiency - -248.0 -316.5

Total 7090.3 3331.6 5377.2

3.3 Of this baseline allowance, we have linked over 55% to outputs with mechanisms

such as price control deliverables (PCDs), volume drivers or use-it-or-lose-it

15 Note reference to the company's forecast costs for projects within load and non-load related capex sections include Indirect opex costs related to the project, where the companies have provided these as part of gross costs. All Ofgem capex allowances for these projects are stated excluding Indirect opex costs, which are allowed separately as part of Indirect opex allowances. 16 As published in Draft Determinations, but this overstated pre-construction allowances by £75m and the NGT200184 scheme allowance by £24.8m. 17 This includes items not originally included in NGET proposed baseline or in Draft Determinations, such as an additional £367m for NOA5 projects. It also includes a provisional £87.4m positive adjustment for a shortfall in allowances for load-related capex work that straddles RIIO-1 and RIIO-2, which is subject to true-up at RIIO-1 close-out. 18 As published in Draft Determinations, but this understated allowances for completion of RIIO-ET1 schemes by ~£90m and circuit breaker allowances by ~£25m. 19 This includes items not originally included in NGET proposed baseline or in Draft Determinations, such as an additional £87m for SF6 works. It also includes a £165.8m negative adjustment for excess allowance in RIIO-1 for non-load related capex work which straddles RIIO-1 and RIIO-2.


39

(UIOLI) to reduce allowances for non-delivery. We have also set a number of

uncertainty mechanisms to assess further potential expenditure during RIIO-ET2.

3.4 Figure 2 shows how we have made adjustments to NGET’s requested baseline

funding from the time of initial business plan submission to Final Determinations.

Figure 2: NGET baseline Totex


40

3.5 Of the total baseline Totex allowance that is subject to the BPI and TIM

mechanisms, we have decided that £2921.9m is of high confidence and £2714.8m

of lower confidence20F

20. This results in a sharing factor for the TIM of 33%.

3.6 Where we have decided that where lower-confidence costs removed by us are

poorly justified, these costs are subject to a BPI Stage 3 penalty, which totals

£37.3m across their plan.

3.7 The following sections set out our decisions on NGET’s allowances and details any

differences from the allowances requested by NGET.

Capital Expenditure (Capex)

3.8 We have reviewed NGET’s submitted capital expenditure programme along the

main cost categories of load related (LR) capex, non-load related (NLR) capex and

non-operational capex.

Final Determination

Capex

category

NGET

proposed

baseline

(£m)

Work Volume

Reductions

(£m)

Cost

Reductions

(£m)

Work

Volume

Reductions

subject to

UMs (£m)

Ofgem Baseline

allowances (£m)

Load

related

capex

1115.621F

21 78.8 5.5 0 1462.9

Non-load

related

capex

2650.9 647.8 237.3 0 1765.8

Non-

operational

capex

376.9 0 30.8 72.6 273.5

20 Note, certain allowances for example, those covered by cross-period funding mechanisms or adjustments like Ongoing Efficiency are not subject to the BPI and TIM mechanisms. 21 NGET’s made additional request of £431.6m (taking total proposed baseline to £1547.2m) following Draft Determinations


41

Load related capex


Assessment of the need for works

3.9 In our Draft Determinations, we proposed to approve most work volumes for LR

capex projects with outputs in the RIIO-ET2 period. The exceptions to this were

Wider Works projects whose approval status had been changed by the updated

NOA process and some elements of protection and control coordination. NGET

submitted requests for additional LR wider works projects following the publication

of the updated NOA report in early 2020. We have reviewed these and have

decided to allow the submitted volumes in full. These will have associated PCDs so

that if the need for them changes following further NOA revisions, NGET will only

be remunerated for the efficient costs it has incurred up to that point.

3.10 In addition, at Draft Determinations we discussed the means by which further

wider works projects that arise during the RIIO-ET2 period will be reviewed and

remunerated. We have decided that allowances will be derived though the use of

unit cost allowances for incremental capacity, though with a number of safeguards

to protect consumers or NGET from undue windfall gains or losses. See Chapter 4

for further details.

3.11 Our policy on generation and demand connections remains unchanged from that

proposed in Draft Determinations – these will be subject to a revenue driver

mechanism unless deemed as outliers as set out in Chapter 4.

3.12 There are a number of residual elements of the LR capex Draft Determination that

we have considered further following engagement with NGET, as set out below.

3.13 Protection and control coordination – we proposed in Draft Determinations to

provide funding for a study on the future work required, and that any identified

works could be considered under the MSIP reopener. NGET disagreed with the

proposed removal of all funding for future works that would have been informed

by the study. We have considered this response but believe there to be still too

much uncertainty, not just in the works that may result from the study works, but

also in the potential cross-over between these works and other areas of NGET’s

submission, such as opex and NLRE Protection and Control works. We have


42

therefore decided to implement the approach proposed in Draft Determinations,

but have updated the value of the associated allowance from the £[redacted]m

proposed in Draft Determinations to £[redacted]m.22F

22.

3.14 Wide area monitoring – in Draft Determinations, we proposed to approve these

works in full and to attach a PCD. NGET considered the nature of the proposed

PCD was too restrictive in that it identified specific sites to be addressed. We

agree that a mechanistic PCD is not required due to the mandated nature of the

works and the delivery timescales to complete the roll-out.

3.15 Site separation – we proposed to allow the requested funding in full and to attach

a PCD. However, NGET asked for greater flexibility in the associated PCD.

Following further consideration, we have decided to approve funding in full for the

sites identified without a PCD.

3.16 Harker Site Replacement (LOTI) - NGET originally requested a range of LR

schemes at Harker which we proposed in Draft Determinations to approve.

However, subsequent additional information from NGET has highlighted a full site

replacement may instead be required. There was not enough time between receipt

of this information and Final Determinations to enable us come to a final view on

the scope, timing and costs in order for baseline funding to be provided. As a

result, we have decided that the new proposals for Harker may be submitted

through the LOTI process. There are existing connection agreements in place with

connection dates in 2022 and 2023; we will ensure that the LOTI process operates

to a timetable that enables these connection dates to be met.

3.17 Easements – at Draft Determinations, we proposed £14.9m funding due to a lack

of evidence to justify the full amount of NGET’s request. Following consideration of

new evidence and justification submitted by NGET, we have decided to allow the

requested amount in full, with an ex-post true-up of incurred expenditure at RIIO-

ET2 close-out. Easement expenditure will not be subject to the TIM.

3.18 Pre-Construction Funding for LOTI projects – at Draft Determinations, we

proposed £[redacted]m funding for pre-construction related to two potential LOTI

projects because of the four projects NGET proposed in its business plan, the two

22 Our decision contains an updated value for the costs of conducting detailed studies and analysing the results. The current value (£5.37m) replaces the previous estimate used in Draft Determinations (£4.72m).


43

others had received NOA ‘Stop’ signals by the time of our Draft Determinations.

After Draft Determinations, NGET submitted request for pre-construction

associated with new projects that had been given a “Proceed” signal by the ESO in

its 2020 Network Options Assessment. Our Final Determination in this area

includes £425.5m of Pre-Construction Funding PCD allowances for all NGET

projects that received a ‘Proceed’ signal in the 2020 NOA. Our overall approach to

Pre-Construction Funding is set out in the ET Annex.

3.19 Net Zero & Re-opener Development UIOLI – we have decided to provide NGET

with a UIOLI allowance of £16m for the development work that may be required in

relation to potential MSIP or Net Zero re-opener projects. More detail on this

UIOLI can be found in the Core Document.

Cost efficiency assessment

3.20 Our proposed approach at Draft Determinations was to apply our view of efficient

asset unit costs derived from benchmarking across the ETOs to determine

allowances for projects that have had their needs case accepted. NGET questioned

the validity of most of these unit costs, highlighting differences in the way the

data had been compiled by the different ETOs, which they claimed undermined the

basis of the cost assessment process. Whereas the other ETOs followed our

guidance and broke costs down by civil, risk and contingency, and other costs,

NGET grouped a large portion of such costs into their asset costs due to their

historical method of cost reporting. In light of the different approach adopted by

NGET for allocating costs to the disaggregated elements of projects, the more

granular approach is no longer viable. Accordingly, as set out in the ET Annex, we

have had to revise our approach to cost assessment of NGET’s LR (and NLR)

capex programme for Final Determinations.

3.21 NGET also took a different approach to the Scottish ETOs in respect of the

reporting of risk and contingency in their submitted costs. It contended that its

costing process only applies project-specific risk estimates for projects that have

reached the “Develop and Sanction” stage in their project costing cycle (the fourth

stage of a six-stage cycle). Only a small subset of their submission had reached

this stage.

3.22 We have applied our approach to risk and contingency to those schemes where

risk and contingency costs has been identified and reported. We consider that


44

where asset costs are based on RIIO-ET1 outturns, they will include any

crystallised risk and contingency. As a result, we have removed any submitted

asset risk costs from these schemes. This has resulted in a £2.4m reduction from

NGET’s submission. However, there is a general lack of transparency about any

inbuilt risk and contingency in NGET’s cost forecast beyond these schemes.

3.23 In its BP submission, NGET included a reduction of ~2% across its LR

programme23F

23 to reflect its view of where submitted costs had not met the average

asset cost suggested by the external benchmarking it commissioned. The cost

reduction from the comparative benchmarking of the Scottish ETOs resulted in

reductions of up to 2% on their asset costs, despite having commissioned similar

independent benchmarking ahead of their BP submissions. However, we also note

that in comparison with the NGET costs, which were based on outturn costs, the

Scottish ETO costs were largely based on factory gate costs and therefore we

would expect these to be subject to less reduction than NGET’s.

3.24 Additionally, we reduced the risk and contingency in the Scottish ETO submissions

by between 0.5 – 1.5% of allowed LRE and NLRE capex. Again, they were able to

provide detailed breakdowns of the scope and scale of assumptions underpinning

their submissions, so this would seem to provide a minimum level for

benchmarking any reduction of NGET’s submissions.

3.25 We conducted a qualitative assessment of the NGET gross costs as presented

through the EJPs. Our view was that in comparison with the Scottish ETO civils

costs, NGET’s were neither as well developed nor as strongly justified. For the few

instances where we were able to make a comparison of similar work between

NGET and the Scottish ETOs, we found that NGET’s submitted costs were

consistently higher.

3.26 Our experience of reviewing NGET’s historical project submissions would suggest

that our view of efficient levels are 8-15% lower than their originally proposed

level.

3.27 Our inability to apply a mechanistic approach to gauge the efficient costs in

NGET’s BP submission means we think it’s appropriate to apply our regulatory

23 On the same basis, NGET proposed ~0.5% reduction across its NLRE submission


45

judgement on the cost efficiency24F24 across their submission. Considering the lack

of benchmarking, our inability to scrutinise inbuilt risk and contingency, the lower

degree of cost transparency and justification of non-asset costs, and our historical

experience of assessing NGET’s cost submissions, we have decided to impose a

5% reduction across all lower-confidence elements of the LRE cost submission.

3.28 We expect the above-mentioned inconsistencies in cost reporting between the

ETOs to be resolved during the RIIO-ET2 period, such that a more compatible and

granular set of data can be used to inform RIIO-ET3 allowances.

High and Lower Confidence proportion of costs in baseline Totex allowance

3.29 Applying the methodology as set out in the Core Document, we have decided that

of the £1063.1m baseline allowance for LR capex that is subject to the BPI and

TIM mechanisms, all are lower confidence costs.

BPI Stages 3 and 4

3.30 We considered the information submitted by NGET in our assessment of

confidence in its submitted costs for the purpose of the TIM and BPI mechanisms.

3.31 Following the publication of our DDs, NGET submitted additional information to

support its proposed unit costs, which were used to inform our view of allowances.

We reviewed this additional information but did not consider that there was

sufficient independent cost information to support the full extent of the unit costs

proposed in any asset category. We have therefore classified all LR capex asset

costs as lower confidence.

3.32 We have also decided to classify as lower confidence non asset costs such as

those relating to civil works, preconstruction, and 'other' cost categories within the

BPDT submitted by NGET. This is because we have not been able to independently

set an efficient cost for these elements, nor did NGET provide sufficient

independent cost information for any of these costs to support a high confidence

classification.

24 This is essentially a “catch-up” efficiency to reflect the inefficiency of current costs. We also apply an ongoing efficiency across Totex to represent the expected future efficiency gains we expect from an efficient operator across the T2 period.


46

3.33 Of the £1063.1m of NGET’s submitted LR capex costs that are subject to the BPI

and TIM mechanisms, we have decided to classify all costs as lower confidence.

We have made a 5% overall reduction in LR capex submitted costs, but this

reflects a broad view of current efficient cost (i.e. excluding ongoing efficiency) in

this area and the reduction has not been subject to a BPI Stage 3 Penalty.

3.34 As set out in the Core Document, NGET’s failure of the BPI stage 1 means that it

does not have the opportunity to benefit from stage 4 rewards under the LR capex

cost category.

Provisional RIIO-ET1/RIIO-ET2 crossover funding

3.35 For generation connection projects that cross over RIIO-ET1 and RIIO-ET2, RIIO-

ET1 volume drivers will provide funding if those projects complete by the end of

the 2nd year of RIIO-ET2. For those that are completed after year 3, the RIIO-ET2

part of the efficient costs are included in the RIIO-ET2 baseline allowance and they

will be subject to the RIIO-ET2 volume driver for delivery. For the RIIO-ET1 part,

our Draft Determinations position was to address the funding true-up in RIIO-ET1

closeout when all relevant information is available. After Draft Determinations,

NGET identified the likely impact of this true-up to be a shortfall of £87.4m in

RIIO-ET1 funding.

3.36 Noting our position on a similar but opposite (i.e. an excess instead of shortfall of

funding in RIIO-ET1) item in the NLR capex category which we have proposed to

adjustment in RIIO-ET2 allowance, we consider there is merit in providing a

combined forward view of the overall impact on NGET’s allowances. We also note

that, unlike the NLR item, the LR capex amount can only be ascertained at the

time of RIIO-ET1 closeout. We have therefore decided to add a provisional amount

of £87.4m to the RIIO-ET2 baseline allowance, subject to a true-up at RIIO-ET1

closeout.

Summary of LR capex approved projects

3.37 The ET Annex identifies the differing treatments of LR capex projects depending

on their start/end years and the type of work. Appendix 1 lists:

• The RIIO-ET1/T2 crossover projects that have allowances through the RIIO-

ET2 settlement, but which will need to be trued up with the allowances from

the RIIO-ET1 volume driver mechanism


47

• Those RIIO-ET2 baseline projects that fall under the RIIO-ET2 volume driver

mechanism

• The PCDs and UIOLI associated with approved LR projects during the RIIO-

ET2 period

• The RIIO-ET2/T3 projects that will be trued-up as part of the RIIO-2 closeout

or the setting of RIIO-ET3 process.

Non-load related capex


Assessment of the need for works

3.38 At Draft Determinations, we proposed significant cuts to the work volumes in

NGET’s NLRE submission due to insufficient engineering justification. In response

to our Draft Determinations, NGET provided a range of additional information in

support of their Business Plan submission, which included further explanation of

their use of portfolio-based submissions.

3.39 NGET have provided a more comprehensive presentation of needs cases and

greater disaggregation of costing. This has addressed many of our concerns in

respect of scheme maturity and has allowed us to approve additional work

volumes.

3.40 The additional information and disaggregation of costs provided by NGET has not

changed our view that the majority of NGET’s scheme development works are

immature. As a result, we have categorised these as poorly justified lower

confidence for the purposes of the TIM and BPI mechanisms.

3.41 Since Draft Determinations, NGET has provided a wider range of investment

drivers which has shown that aspects of the NGET plan had poorly presented but

genuine justification for inclusion.

3.42 While we accept some aspects of NGET’s principle of managing an ageing portfolio

of assets, we expect works to address a “bow-wave” of common condition/failure

modes to be managed on the basis of the most relevant condition information.

Our principal objective is to protect the interests of existing and future consumers,

therefore where investment ahead of need to manage future resourcing concerns

has been clearly demonstrated and evidenced, including additional funding for the


48

replacement of assets which may be defined currently as low or medium risk, we

have approved these requests.

3.43 We note the details pertaining to long -term risk management provided in NGET’s

submission and in bilateral meetings with us. We will take these details into

account in assessing NGET’s performance against the required outputs in our

RIIO-1 closeout review. This will include NGET’s decision-making on asset life

extension in some categories, and increased risks in others.

3.44 Our decisions on each of the areas of NGET’s NLR capex plan and the rationale for

them are set out below.

3.45 Super Grid Transformers (SGTs) – in Draft Determinations, we proposed to reduce

NGET’s planned SGTs from [redacted] to [redacted] and to reject the rest as we

viewed it uneconomic and inefficient to replace healthy assets. NGET provided

significant additional asset health and project data to support their request. This

included highlighting assets which had rapidly degraded from their originally

reported position. We note that NGET’s pessimistic assumption of risk increases

are generally driven by asset family issues, which we note are difficult for us to

assess. However, we accept and approve the additional 8 units highlighted by

NGET as high-risk assets which warrant replacement. We have also decided to

approve 3 Static Compensator Transformers, which NGET evidenced as high risk.

3.46 Overhead Lines (OHL) Conductor Replacement - We proposed in Draft

Determinations to reduce NGET’s planned replacement of OHL conductors from

[redacted]km to [redacted]km and to reject the rest as, in our view, there was

limited evidence to suggest the need for their replacement during RIIO-ET2. In

response to our Draft Determinations, NGET provided a significant level of

additional data. This included a description of a known failure mechanism for a

particular conductor type, descriptions of long-term management and delivery of

large asset portfolios, and a statement that there was a [redacted]km minimum

replacement requirement to mitigate these risks and to maintain network security

and reliability. The vast majority of the [redacted]km minimum level was formed

of conductors of the type affected by the described failure mechanism. While we

recognise the failure mode, we note that the samples that identified the early by-

products of the failure mechanism were several years old, and no evidence was

provided that demonstrated that the conductors were approaching end of life.


49

With this in mind, and in recognition of the need to maintain an acceptable age

profile for the portfolio of OHL conductors, we have decided to accept the needs

case for the replacement of [redacted]km of OHL conductors. In our review we

have decided to approve the project works which are interactive with Scottish

Power Transmissions investment plan. Given the high associated costs and

limited evidence of actual condition, we have applied a PCD to all OHL conductor

works to protect consumers against under-delivery in the RIIO-T2 period.

3.47 OHL Fittings – Our Draft Determination proposal was to reduce NGET’s planned

OHL fittings replacement works from [redacted]km to [redacted]km and to reject

the rest as there was limited evidence to suggest the need for their replacement

during RIIO-ET2. Since then, NGET provided additional fittings condition and cost

data. However, this evidence has not adequately addressed our concerns about

the need for replacement, and so we have decided to implement our Draft

Determinations proposal.

3.48 Circuit Breakers (CBs) - NGET requested funding for the replacement of [redacted]

CBs and the completion of a range of RIIO-ET1 projects. In Draft Determinations,

we proposed to approve [redacted] CB replacements where there was a clear

asset health driver, and to reject 26 which were reported as healthy. Since then,

NGET provided a significant level of additional information on the need for

intervention on those 26 CBs. These assets do not appear to be as low risk as

presented by NGET’s current risk scoring and we expect the health risk reporting

to be updated ahead of RIIO-ET1 close-out for these assets. On the basis that all

units are in reality high risk and the proposed intervention is appropriate for the

risk, we have decided to approve all [redacted]units that NGET requested.

3.49 Shunt Reactors – In Draft Determinations, we proposed to approve NGET’s

requested funding for intervention on [redacted] shunt reactors but to reject its

request in respect of RIIO-ET3 Shunt Reactor development works. We have

considered NGET’s response but consider the evidence provided is insufficient to

change our view; therefore, we have decided to implement our Draft

Determinations proposal.

3.50 Cables (Lead Cables) - NGET requested funding for [redacted]km of Lead cable

replacement (Sheffield Ring), which we proposed in Draft Determinations to reject

based on the cables being reported as healthy in both RRP and in NGET’s


50

December 2019 business plan. NGET have provided a significant level of additional

detail which clearly demonstrates the cables are higher risk than previously

reported. Given this new information on the condition and risks associated with

the cables, we have decided to approve this investment. We are concerned as to

why these cables were not replaced during RIIO-ET1, which we will consider

together with the reporting of cable health as part of wider RIIO-ET1 closeout

works.

3.51 Instrument Transformers - NGET requested funding to replace [redacted]

Instrument Transformers. Our review of the supporting evidence suggested that

using NGET’s own scoring system, a range of these assets would not require

replacement. As a result, in Draft Determinations we proposed to approve

[redacted] replacements. Since then, NGET provided a significant level of

additional information, including the correction of a number of errors in their

original submission. Correcting for these errors, we have decided to approve the

replacement of all instrument transformers that NGET suspects contain

polychlorinated biphenyls (PCBs). We have also approved all Dissolved Gas

Analysis driven ITs and all CTs leaking SF6. Where there is still ambiguity in

NGET’s data, specifically in relation the Family driven ITs, we have decided to

approve 20% of NGETs request for assets which are classified as a 5-10 year

replacement priority (indicating replacement most likely required in T3) based on

the data provided. We have decided not to approve NGETs request for 75 IT

replacements on an emergency basis as we believe this can be managed via our

existing approved volume of family ITs. Overall, we have decided to approve the

replacement of [redacted] units and have included a PCD to adjust funding if the

proposed volume of work does not materialise.

3.52 Switchgear Other (Bays) - NGET requested funding for interventions on [redacted]

bay assets. In Draft Determinations, we proposed to approve [redacted] bay

intervention works based on estimated unit rate costs and the number of bay

assets (6) associated with CB interventions. Since then, NGET provided additional

information for their bay assets, including relevant detail about their Anticipated

Asset Life, informed, in part, by site-based surveys and extrapolation of condition

information. In addition, NGET noted that the minimum amount of interventions

required in order to maintain network reliability and security was [redacted].

While the additional information provided by the site surveys carried out between

July and September 2020 is informative, we note that it only represents a small


51

sample of the requested bay assets. Having reviewed the available evidence, we

have decided to accept NGET’s proposed minimum level of interventions but, due

to the limited and immature nature of the NGET asset data provided, we have

attached a PCD to protect against under-delivery in RIIO-ET2.

3.53 Protection and Control (P&C)– NGET proposed a volume of [redacted]

interventions on P&C assets. Our Draft Determination position was to approve only

the assets which had been labelled as having “performance” issues, which resulted

in an approved volume of [redacted] interventions. Subsequently, in bilateral

meetings with NGET’s specialists, we received a significant level of information

which had not been presented before then. NGET also reduced their minimum

request from [redacted] assets to [redacted]. NGET’s specialists highlighted the

investment needs case dealing with common mode failures, P&C obsolescence and

support arrangements. This commentary provided valuable justification, not

provided in writing, for NGET’s minimum requirement, and as result, we have

decided to approve the request of [redacted] asset interventions in full. However,

because of the significant increase in workload relative to RIIO-ET1 we have

concerns over the deliverability of this programme of work, and as a result, will

use a PCD, which will adjust allowances in line with actual volumes delivered.

3.54 Substation Auxiliary Systems - NGET requested funding for a range of works on

substation auxiliary systems. This included Battery Replacement, Diesel Generator

Replacement, LVAC Board Replacement and Minor capex works on both

Generators and LVAC boards. In Draft Determinations, we proposed to accept half

of NGET’s request and to reject the remainder due to limited condition data to

justify the need for intervention. Since then, NGET provided a significant amount

of additional supporting data for Diesel Generator and LVAC boards. This has

addressed some of our concerns around potential obsolescence issues. NGET also

provided additional information highlighting that much of the needs case is based

on obsolescence rather than as-found condition. We accept the need to replace

ageing substation auxiliary systems and have decided to approve these works in

full. However, due to limited condition-based evidence and limited consistency in

costing of Substation Auxiliary Systems, we have decided to fund these under a

UIOLI arrangement.

3.55 Towers and Foundations - NGET requested funding to undertake 3 workstreams:

Tower Painting, Tower Steel Works interventions and Tower Foundations. In Draft


52

Determinations, we proposed to set an allowance based on RIIO-ET1 outturn

expenditure due to insufficient supporting evidence. Since then, NGET provided a

significant amount of additional detail, including correcting errors and clarifying

the asset data used to support the investment proposal. As a result, we have

decided to allow in full the requested funding for Tower Painting. However, for

Foundations and Steelwork, we note that for both volumes of work and costs there

is a heavy resilience on surveys which have not been completed. This creates a

risk of funding work that may not be required. For this reason, we have decided to

provide baseline funding of 30% of the requested amount to allow survey works

and immediate interventions to continue, and have created a re-opener to

facilitate additional funding for Foundations and Steelwork once the surveys are

complete. We expect NGET to undertake comprehensive survey works and have

detailed condition works to support any re-opener request.

3.56 Through Wall and Floor Bushings - NGET requested £14.4m for its Through Wall

and Bushing Programme. In Draft Determinations, we proposed to allow funding

of £10.44m on the basis that the asset condition data provided did not support the

level of intervention proposed. NGET did not provide any additional data for this

area, so we have decided to implement our Draft Determination position for Final

Determinations.

3.57 Tyne Crossing - NGET requested £[redacted]m to underground the OHL crossing

the River Tyne. At Draft Determinations, we proposed removing the requested

amount from baseline funding and instead, proposed to include this in the MSIP

re-opener, which could be triggered once the investment driver, the scope and the

costing concerns that we had could be addressed. In response, NGET provided

additional information to explain that this scheme was required to meet their

licence obligations. No additional information was presented to address our

concerns on costs or scope certainty. We have therefore decided to implement our

Draft Determinations position and invite NGET to resubmit proposals through a

bespoke re-opener when our remaining concerns can be addressed.

3.58 Condition Monitoring - NGET requested £22.1m for condition monitoring. While we

accept the need for condition monitoring, NGET provided limited evidence on

where these would be deployed and how they would be used. We therefore

proposed in Draft Determinations to approve £14m. In response, NGET provided a

significantly greater level of information on the intended use and application of


53

condition monitoring. This included providing information on the application and

use of future collected data. In light of this additional information, we have

decided to allow the full request of £18.65m (direct costs).

3.59 SF6 asset interventions - NGET did not make a baseline request for SF6

interventions in their December 2019 submission (outside of CBs and Instrument

Transformers). After Draft Determinations, NGET requested £657m for SF6

abatement works split into two categories: Defined Interventions and Flexible

Interventions. For the defined works, we see relevant needs cases for

intervention. We do, however, note that the long-term strategy for SF6 abatement

is not clear. As such, we have decided to part-fund the defined projects by

allowing £91.7m baseline funding (subject to further cost assessment), with an

attached PCD and re-opener. For the remaining defined interventions and the

flexible interventions, funding can be sought via the MSIP re-opener. Detail of the

relevant PCD and re-openers is set out in Chapter 2. We expect NGET to have

clear and well-articulated long-term plan to reduce not only SF6 leakage from its

assets, but its SF6 inventory as well.

3.60 Dinorwig-Pentir - NGET requested £[redacted]m to replace the Dinorwig-Pentir

cable and substation. Given the reported status of the cables as healthy and

limited cost information presented, we proposed in Draft Determinations that

these works could be submitted through the LOTI re-opener. In response, NGET

provided additional information supporting the needs case for these works. This

included additional costing information as well as a number of tender returns

which were received by NGET. We note that the Dinorwig-Pentir cables are in poor

health and recognise intervention is likely required. We also note the customer

and ESO support for this project highlighted in consultation responses. We are,

however, concerned that the reporting of the cable health is still inconsistent with

the information presented in RIIO-ET1 and as such, we intend to look at this as

part of RIIO-ET1 closeout. In our view, the cost information presented is still

immature and given recent NGET tender returns which differ in value significantly

from NGET’s submitted costs via BPDTs, we are concerned that costs could change

significantly. We have therefore decided to use the LOTI re-opener to review the

relevant costs when there is greater certainty. On this basis of our decision and

funding position, we do not believe an eligibility assessment is needed for this

project under the LOTI process. We have decided to allow £[redacted]m (before


54

cost assessment review) baseline funding to allow NGET to proceed, based on our

understanding of NGET’s commitment profile.

3.61 London Power Tunnels Phase 2 - NGET requested £649.9m to replace a number of

cable routes in London with underground tunnels, which we proposed in Draft

Determinations to approve in full. NGET made no changes or additional updates to

its request in respect of this project. Therefore, our decision is to implement our

Draft Determination.

3.62 Cables (Non-Lead) – NGET requested £36.25m to replace [redacted]km of non-

lead cable during RIIO-ET2. Due to a significant proportion of these cables being

in a replacement window of 5-10 years, in Draft Determinations we proposed to

approve only [redacted]km of non-lead cable replacement. In response, NGET

provided additional detail and corrected an error in its reporting, which reduced

their request to [redacted]km. It also presented additional information on the

needs case for intervention. Following review of this information, we have decided

to approve in full their request to replace [redacted]km of these cables.

3.63 Blackstart: - NGET requested £22.2m in the original business plan submission. In

our draft determination considerations, we did not see justification for approval of

T2 funding and rejected the entire ask. We also felt that the cost and scope

development of the interventions proposed was weak. In response to our draft

determinations NGET provided additional information in support of their ask. We

have reviewed this information, but we still see no reasonable justification for the

level of allowance or clarity on the scope of works requested. We have included a

bespoke section in the MSIP reopener to allow for NGET to develop and justify

their Blackstart works ahead of any Engineering Standard changes and invite

NGET to utilise this mechanism when the scope, costing and timings are clearer.

3.64 Bengeworth Road GSP - Bengeworth Road was an additional but complementary

element of the London Power Tunnels Phase 2 project. Our Draft Determination

position was to approve the £25m baseline funding requested. In response, NGET

provided additional information on the driver for these works. NGET also provided

additional data on a significant increase in costs since its December 2019 business

plan. This increase was for two reasons: an error in NGET’s December 2019 BPDT

submission, and an increase due to NGET having undertaken further survey and

tender works. As a result of these issues, we reviewed the engineering


55

optioneering behind this proposal. Following engagement with NGET and UKPN,

the DNO who had driven this work, we have significant concerns over the level of

initial development and lack of consideration of other potentially less costly

interventions. As a result, we are unable to provide a view on this project at this

time and have therefore created a specific Authority triggered re-opener to

consider the need for and costs of this project when there is greater certainty.

Conclusions on NLR Capex

3.65 Across NGET’s NLR capex submission, there were common themes around the lack

of development on the scope, timings and costs of proposed schemes, and a lack

of evidence to justify need for the requested funding. Whilst this position did

improve between Draft and Final Determinations, our concerns have not fully

abated. As a result, we have included various mechanisms across the NLR capex

portfolio to protect against the risk of under-delivery, while allowing NGET the

scope to deliver works that are needed to ensure network reliability and/or to

manage long-term delivery risk, amongst another things. The table below is a

high-level summary of the asset category, the work volumes requested and

approved, and the relevant control mechanism, where applicable.

Table 825F

25: Engineering Volume and Controls

Asset

Category

Volume Requested

(If applicable)

Volume Approved

(If applicable)

Control

(if applicable)

UM (if

applicable)

Super Grid

Transformers [redacted] [redacted] NARM N/A

OHLs

Conductor [redacted] [redacted] PCD N/A

OHLs Fittings [redacted] [redacted] NARM N/A

Circuit

Breakers

(CBs)

[redacted] [redacted] NARM N/A

Switchgear

Other (Bays) [redacted] [redacted] PCD N/A

Reactors [redacted] [redacted] NARM N/A

Cables (Lead

Cables) [redacted] [redacted] NARM N/A

Instrument

Transformers [redacted] [redacted] PCD N/A

25 Please note, due to difficulties analysis between Dec 2019 BPDT and Dec 2020 BPDT some volumes may not align completely


56

Asset

Category

Volume Requested

(If applicable)

Volume Approved

(If applicable)

Control

(if applicable)

UM (if

applicable)

Cables (Non-

Lead) [redacted] [redacted] N/A N/A

Dinorwig-

Pentir [redacted] [redacted] N/A

Reopener

(LOTI)

London Power

Tunnels [redacted] All

NARM

(Ringfenced) N/A

Bengeworth

Rd GSP [redacted] Pending N/A

Reopener

(Bespoke)

Protection &

Control [redacted] [redacted] PCD N/A

Substation

Aux Systems [redacted] Various UIOLI Fund N/A

Towers and

Foundations [redacted] Various N/A

Reopener

(Bespoke)

Spares [redacted] All N/A N/A

Blackstart [redacted] None N/A Reopener

(MSIP)

Through Wall

and Floor

Bushings

(TWFB)

[redacted] [redacted] N/A N/A

Tyne Crossing [redacted] Pending N/A Reopener

(Bespoke)

Condition

Monitoring [redacted] All N/A N/A

SF6 [redacted] Various

interventions PCD

Reopener

(Bespoke/Net

Zero)

Cost efficiency assessment

3.66 As noted in the LR capex section, we have had to use our regulatory judgement in

forming our view of the appropriate level of efficient costs of NGET’s LR and NLR

capex submission. This has resulted in a 5% reduction on all of the lower

confidence costs within the submission; we have accepted the high confidence

costs (£546m of LPT2 costs) without this reduction.

High and Lower Confidence proportion of costs in baseline Totex allowance


of the baseline allowance for NLR capex that is subject to the BPI and TIM

mechanisms, £1442m is lower confidence and £850m is high confidence.


57

Cost confidence and BPI Stages 3 and 4

3.68 The costs related to the London Power Tunnels and Hinkley projects were

supported by sufficiently independent cost information and so we have decided to

classify them as high-confidence costs.

3.69 In respect of risk and contingency costs, in Draft Determinations we considered

these to be lower confidence. All three ETOs disagreed with this classification in

response to DDs, arguing that these costs should be classified as high confidence

as Ofgem was using an independent cost assessment method to calculate an

efficient risk and contingency allowance. We have agreed with this rationale and

decided that these costs should be classified as high confidence.

3.70 As regards the remainder of the NLR capex costs, we reviewed the additional

information provided by NGET to support its proposed costs, but considered that

there was insufficient independent cost information to support the full extent of

the unit costs proposed in any asset category. We have therefore classified all

other NLR asset costs as lower confidence. Similar to LR capex, no independent

cost information was provided to support NGET’s NLR non-asset costs; therefore

we have also classified these costs as lower confidence, other than risk and

contingency costs which are classified as high confidence. Our lower confidence

assessment is also based on concerns about the robustness of the needs-cases

and deliverability of the proposed works.

3.71 Of the £2632m of NGET’s submitted NLR capex costs that are subject to the BPI

and TIM mechanisms, we have decided to classify £1780m as lower confidence

and £852 as high confidence costs. £338m of these lower confidence costs have

been assessed as poorly justified and disallowed, resulting in a BPI Stage 3

penalty of £33.8m. NGET is not eligible for any Stage 4 rewards due to its failure

of BPI stage 1.

RIIO-ET1/RIIO-ET2 crossover funding

3.72 At Draft Determinations, we proposed to make a negative adjustment to NGET’s

RIIO-ET2 NLRE allowance to reflect the unused RIIO-ET1 allowances that had

been provided specifically for the purposes of funding NLR capex projects that

would not deliver outputs until RIIO-ET2. The reason for this proposal was so that

consumers would not have to pay twice for works that would be delivered in RIIO-

ET2. The amount of adjustment proposed in Draft Determinations was based on


58

the information available at the time. It was stated as £556m, which was a

transcription error and should have been stated as £513m.

3.73 NGET objected strongly to our proposal, considering that this would effectively be

a re-opening of the RIIO-ET1 price control. Notwithstanding this disagreement on

the principle of our proposal, after further engagement with us, NGET has clarified

that:

• Of the £513m, £347m is already returned to consumers as part of the

voluntary deferral in 201726F

26; and

• It had incurred £87.4m in RIIO-ET1 for connection projects that will not

deliver outputs until year 3 of RIIO-ET2, for which there is no formal

mechanism in the licence to recover these costs.

3.74 We disagree that an adjustment to reflect excess or a shortfall in RIIO-ET1

funding for works that crossover from RIIO-ET1 and T2 would amount to a re-

opening the RIIO-ET1 price control. We have decided to adopt the Draft

Determinations approach of making adjustment for excess funding in RIIO-ET1 for

NLR capex. After confirming the amount already part of the mid-period hand-back

as set out in point a) of the previous paragraph, we have decided to update the

adjustment amount to a negative £165.8m. Regarding point b) in the previous

paragraph, we have decided to take a provisional adjustment as set out in the LR

capex section above.

Summary of approved NLR capex projects

3.75 The ET Annex identifies the different treatments of NLR capex projects depending

on their start/end years and the type of work. Appendix 1 to this document lists

the RIIO-T1/T2 NLRE crossover projects and the RIIO-ET2/ET3 projects that will

be trued-up as part of the RIIO-ET2 closeout or the setting of RIIO-ET3 process.

The PCDs associated with approved RIIO-ET2 NLR projects are listed in Chapter 2.

26 Please see the decision document published here: https://www.ofgem.gov.uk/system/files/docs/2017/08/decision_to_modify_pcfms_for_london_medium_pressure_refund_and_national_grid_voluntary_allowance_deferral.pdf


59

Non-operational capex

3.76 Non-operational capex relates to assets not directly connected to the network, but

which support the general functioning of the business. These costs can be broken

into the following four categories: Property; Small tools, equipment, plant and

machinery (STEPM); Vehicles and Transport and, Information Technology and

Telecoms (IT&T).

Non-Op

Capex

category

NGET

proposed

baseline

(£m)

Work

Volume

Reductions

(£m)

Cost

Reductions

(£m)

Work Volume

Reductions

subject to UM

(£m)

Ofgem FD

Baseline

Allowances

(£m)

Property 10.0 10.0

IT&T 337.0 26.1 72.6 238.3

STEPM 9.3 4.8 4.5

Vehicles &

Transport 20.6 20.6

Total 376.9 - 30.8 72.6 273.5


3.77 With regards to Property costs, no responses to Draft Determinations disagreed

with our proposal. Therefore, we have decided to implement our Draft

Determination proposal to allow £10m for these costs.

3.78 With regards to IT&T costs, we proposed a baseline allowance of £143.6m for

projects with sufficient maturity, and a re-opener for the remaining works. NGET

disagreed with our evaluation of its costs in this area, considering that the

maturity assessment set an unreasonable expectation of how far its proposed

investments need to have progressed through the governance process. NGET also

challenged the level of efficiency cuts on projects proposed for ex-ante allowance.

3.79 We have actively engaged with NGET to address the lack of detail and cost

certainty within its IT&T investment portfolio. Following consideration of additional

evidence from NGET, we have decided to provide baseline allowances for an

additional number of IT projects that we had proposed to be subject to a re-

opener. After applying our view of efficient cost, this takes our Final Determination

view of baseline funding for IT&T to £238.3m. The remaining IT investment

projects will be subject to a re-opener given their potential needs cases but

project immaturity and the lack of detail available at this stage.


60

3.80 Consistent with our view at Draft Determinations, we have decided to reduce

NGET’s STEPM request of £9.3m to £4.5m, which is in line with historic run-rates.

3.81 On Vehicles and Transport costs, NGET disagreed with the methodology used to

calculate its proposed non-Electric Vehicle (EV) allowance. We accept that the type

of vehicles2 7F

27 being replaced with EVs should not have been included in our

historical trend model, and so we have recalculated the allowance with this vehicle

type excluded. This resulted in an increase for this category of £3.3m to £20.6m.

High and Lower Confidence proportion in baseline Totex allowance.


of the proposed baseline allowance for Non-operational capex that is subject to

the BPI and TIM mechanisms, £273.4m is high confidence with no lower

confidence costs.

BPI Stages 3 and 4

3.83 We have seen an uplift in the NGET non-operational capex allowance from our

position in Draft Determinations due to increased allowances for IT&T, due to the

improvement in the evidence provided following our DD in support of NGET’s

original submission. This resulted in an increase to high confidence costs in this

cost category.

3.84 Of the £304.3m of NGET’s submitted Non-operational capex costs that are subject

to the BPI and TIM mechanisms, we have decided to classify all of them as high

confidence. As our independent benchmark for the high confidence costs was

more efficient than NGET’s proposed costs, even if NGET had been eligible, there

would have been no stage 4 reward on NGET’s Non-operational capex costs.

Operational Expenditure (Opex)

3.85 Operating expenditure comprises network operating costs and indirect operational

expenditure.

27 Short Wheel Base vans


61

Opex category

NGET

Proposed

Baseline

(£m)

Work Volume

Reduction

(£m)

Cost

Reduction

(£m)

Work

Volume

Reductions

subject to

UM (£m)

Ofgem

Baseline

Allowance

(£m)

Network

Operating Costs 1174.6 81.7 37.2 332.3 723.4

Indirect Costs 1509.3 58.1 163.1 0 1288.1

Network Operating Costs (NOC)

Rationale for Final Determination and Draft Determination responses

3.86 Our overall assessment approach to NGET’s Network Operating Costs is

unchanged from the approach taken for Draft Determinations. However, we have

refined it by:

• fully splitting the direct opex costs from the capex costs and assessing each of

these separately

• using revised cost and volumes data as discussed below.

Data revision

3.87 Our assessment for Draft Determinations was based on cost figures proposed by

NGET in its BPDT comprising both direct opex and capex costs. NGET had

embedded a 1.1% ongoing efficiency in the direct opex figures.

3.88 NGET stated that applying our proposed ongoing efficiency challenge on top of its

own embedded efficiency would be duplication and would result in a

disproportionate reduction to its allowances.

3.89 We have considered this position and have decided to remove NGET’s embedded

1.1% efficiency and retain our ongoing efficiency challenge. NGET has also moved

£2.8m of SF6 repair costs from the repair and maintenance capex in network

operating costs into the non-load related capex.

3.90 Since Draft Determinations were published, NGET has requested additional

funding of £3.3m for SF6 palliative works. We have decided to approve this

funding because we agree with the need for the proposed works and the costs. We

have included it under the repairs and maintenance sub-category in our Final

Determination baseline allowances.


62

3.91 NGET also informed us of mismatches between its direct opex costs and volumes

data in its BPDT that were principally the result of retrospective modifications to

RIIO-ET1 data to match it to the RIIO-ET2 BPDT.

3.92 These mismatches affected the allocation of costs and volumes across asset

categories but did not affect the overall business plan total. We have accepted the

revised data for the affected sub-categories and have used this data in our

assessment for Final Determinations.

3.93 Our decisions on each of the cost sub-categories are given below.

Faults

3.94 Following no responses in this area, we have decided to implement our Draft

Determinations proposals to provide NGET’s requested funding.

Inspections

3.95 Following no responses in this area, we have decided to implement our Draft

Determinations proposals to provide NGET’s requested funding in full.

Repairs and Maintenance

3.96 For NGET’s Civils works we proposed to approve 30% of its baseline request for

£60.7m and to provide re-opener for any additional costs.

3.97 During discussions after the Draft Determinations, NGET informed us that there

are some potentially significant volumes of poor condition civil works. In extreme

cases, these may result in derating substation fault capacity. This is a significant

concern as it suggests that in many instances, replacement may be required

rather than repair. We have therefore decided to provide a bespoke Substation

Civil Investment Works re-opener to consider additional funding when NGET has

collected the levels of condition data required to establish a robust needs case for

any further investment.

Vegetation Management

3.98 We have decided to implement our Draft Determinations proposals to provide

NGET’s requested funding in full as no further information was received after Draft

Determinations.


63

Operational Protection measures and IT capex

3.99 In their December submission, NGET requested funding to continue to develop a

low-risk operational telecoms infrastructure, including the replacement of

[redacted] of fibre wrap and telecoms equipment at [redacted] sites. At Draft

Determinations, we did not consider that NGET had made the case for completing

all this work during RIIO-2, and we proposed baseline funding for the final two

years of RIIO-2 to enable NGET this work to begin. In response to our Draft

Determination, NGET provided revised submissions on its operational telecom

(Optel) schemes – the fibre wrap replacement scheme, and five other Optel

refresh schemes.

3.100 For fibre wrap replacement, NGET significantly revised its proposal and is now

proposing the replacement of existing fibre wrap with metallic Self-Supporting

Optic Fibre (SSOF) to be delivered during the final two years of RIIO-ET2. We note

that NGET will need to develop and prove the technical solution and delivery

capability before starting using this novel SSOF solution. NGET has further sought

to gather and analyse condition data on the fibre wrap to better inform the need

and prioritisation of asset replacement.

3.101 We have reviewed the new proposal for the fibre wrap replacement scheme and

have decided to allow the requested £2.5m in baseline funding to cover asset

condition analysis and solution development, and to provide a re-opener with a

window in 2023 to consider fund the delivery of the replacement works.

3.102 For the five other Optel refresh schemes, we have considered the post-Draft

Determination submissions from NGET and fully accept the needs case for three of

these. These include the High Bandwidth Overlay refresh scheme, which will help

provide larger data bandwidth in their telecoms network needed to maintain

compliance with cyber security legislation, and the schemes to improve the

performance of communications links and physical security. We have accepted the

funding request for these in full. For the remaining two, the Optel network refresh

and control telephony refresh schemes, whilst we accept the need for these, we

still have concerns over the deliverability and need to complete all of the proposed

works during RIIO-ET2 given the expected lifecycle of these assets. However,

having considered the post-Draft Determination submissions from NGET on

synergies between the different schemes, cyber security related drivers and end of

manufacturer’s support, we have decided to allow a further £34m in addition to


64

that proposed in Draft Determinations on these two schemes, allowing a larger

proportion of these works to be completed during RIIO-ET2. This, in our view,

represents the proportion of the proposed works we consider justified and

deliverable in RIIO-ET2.

3.103 [redacted]

Legal and Safety

3.104 NGET requested £59.8m funding for the delivery of Extreme Weather protection at

100 sites. In Draft Determinations, we proposed to allow £24.6m for this work,

which reflected the limited justification for the level of work proposed. In

response, NGET provided additional data which clarified the levels of survey work

and corresponding development which had been undertaken. The Additional

information submission by NGET highlighted that less survey and development

work had been undertaken than expected. Given the limited development work,

we have decided to allow baseline funding of £15.2m for the works which have

been surveyed to date and to allow NGET to request additional funding via the

MSIP re-opener.

High and Lower Confidence proportion in baseline Totex allowance


of the proposed baseline allowance for Network Operating Costs that is subject to

the BPI and TIM mechanisms, £510.4m is high confidence and £209.7m is lower

confidence costs.

BPI stages 3 and 4

3.106 In our draft determination, we proposed that the combined disallowance against

flood mitigation schemes (extreme weather) in the legal and safety, operational

protection measure and IT capex, and repairs and maintenance was poorly

justified and would be subject to a BPI stage 3 penalty.

3.107 In response to Draft Determinations, NGET provided additional information in

support of its submission which we have reviewed and updated our assessment

approach as described in the rationale section above.

3.108 Of NGET's NOCs submission that was subject to the BPI and TIM mechanisms,

£520.6m has been classified as high confidence, and £244.4m as lower


65

confidence. Of these lower confidence costs, we disallowed £34.7m as poorly

justified costs. Accordingly, we have decided that these will attract a £3.5m

penalty under the BPI stage 3 mechanism.

3.109 As our independent benchmark for the high confidence costs was more efficient

than NGET’s proposed costs, there would have been no stage 4 reward on NGET's

NOCs, even if it were eligible.

Indirect Costs

3.110 Indirect Opex consists of both Business Support Costs (BSC) and Closely

Associated Indirect (CAI) costs. BSC are incurred supporting companies’ general

business activities, while CAI costs are those incurred in supporting operational

activities.


3.111 We proposed in Draft Determinations to reduce NGET’s baseline funding request of

£1509.3m for BSC and CAI to £1062.1m based on our assessment of efficient

costs using econometric benchmarking. We also proposed to include an opex

escalator to provide additional opex allowances where additional capex is allowed

through certain UMs. The level of the CAI element of the escalator was based on

the same coefficient used in our CAI model.

3.112 Our response to the concerns in respect of our modelling that were common to all

of the ETOs is set out in the ET Annex. We discuss those raised specifically by

NGET in the following paragraphs.

3.113 NGET expressed concerns about the suitability of econometric modelling for

setting allowances; in its view, since the small sample size leads to an outcome

with a large uncertainty range. NGET suggested that allowances should instead be

set based on RIIO-ET1 levels of indirect costs, with indexation over time for

inflation, RPEs, ongoing productivity and changes in capex due to changing

workload requirements.

3.114 They also considered that any such econometric modelling would not be able to

factor in allowances for costs incurred due to unique network characteristics.


66

3.115 Our view on the points raised by NGET is as follows:

• Our position remains that the use of econometric regression modelling for

deriving indirect opex allowances is appropriate, notwithstanding the relatively

small sample size. We have considered a wide range of models with alternative

cost drivers to gauge the reliability of the outcomes of our model. We found that

the results from these alternatives place the companies in largely the same

relative positions as our model does. This would suggest that using NGET’s

proposed method of using RIIO-ET1 run rates would continue to propagate

produce inefficient allowances for RIIO-ET2

• However, we recognise that additional evidence in support of NGET’s costs should

be considered when setting final allowances. We have actively engaged with

NGET to discuss the available quantitative and qualitative evidence in support of

their submission requests.

3.116 Following engagement with stakeholders, we have decided to assess some cost

sub-categories outside of the econometric modelling process and instead to

conduct a bottom-up review of costs. This is because Operational training,

Wayleaves and costs arising from Environmental Action Plans are more bespoke to

each company and so lend themselves to a more tailored assessment.

3.117 We have also considered the qualitative evidence presented by NGET on its

relative network complexity and on the range of stakeholders and DNO

interactions they have to undertake. Taking this into account, and by using a

range of model results to calibrate our decision, we have decided to allow an

additional £39m above our baseline modelled allowance for CAI costs.

3.118 Our decision therefore is to allow £1288.1m of baseline funding for NGET’s indirect

opex. We have also decided to implement our Draft Determination proposal for an

opex escalator (as set out in Chapter 4) to reflect changes in capex through UMs.

Further detail on the implementation of the escalator is given in the ET Annex.

3.119 We have set out in the ESO Annex Chapter 8 our current position on the ESO’s

use of shared IT services. We intend to work closely with the ESO and National

Grid to ensure that any such investments are “future-proofed” against credible

future scenarios and do not become a barrier to any future IT autonomy for the

ESO, and to understand any impact of this on Business Plans


67

High and Lower Confidence proportion in baseline Totex allowance


£1288.1m of the proposed baseline allowance for Indirect Opex that is subject to

the BPI and TIM mechanisms, is high confidence with no lower confidence costs.

BPI Stages 3 and 4

3.121 Since our Draft Determination position, increases to NGET’s capex allowance, the

workload driver in our CAI model, and a separate assessment of a number of

Indirect cost categories, the details of which are set out in the sections above,

have seen an increase to the CAI allowances for our FD resulting in an increase to

high confidence costs.

3.122 Of the £1509.4m of NGET’s submitted Indirect Opex costs that are subject to the

BPI and TIM mechanisms, we have decided to classify all of them as high

confidence. As our independent benchmark was more efficient than NGET’s

submission for high confidence costs, there would have been no Stage 4 reward

on NGET’s Indirect Opex costs, even if it were eligible for one.

Other costs

3.123 The "other costs" category comprises cyber resilience costs, physical security

costs and other administrative costs.

3.124 We are not publishing information on cyber costs due to the associated security

issues. NGET will receive a report on its submission from Ofgem's cyber-security

team.

Physical security

3.125 NGET owns assets and sites that are designated as Critical National Infrastructure

(CNI). The Secretary of State has initiated the Physical Security Upgrade

Programme (PSUP), a BEIS-led national programme to enhance physical security

at CNI sites.

3.126 [redacted]


68

Final Determination

[redacted]


3.127 [redacted]

3.128 [redacted]

Ongoing efficiency and Real Price Effects (RPEs)

3.129 As detailed in the Core document, we have implemented ongoing efficiency at a

rate of 1.15% (compounded annually) for capex and 1.25% (compounded) for

opex. Please note that this has been applied to the allowances after application of

the company’s capitalisation policies.

3.130 The rate for deriving the estimated future view for RPE allowance, by year, is

given in the table below.

Table 9: Rates applied for estimating future RPE allowances

Year 2022 2023 2024 2025 2026

Rate 2.09% 2.97% 3.75% 4.05% 5.26%


69

4. Adjusting baseline allowances for uncertainty

Introduction

4.1 This chapter sets out our decisions on each Uncertainty Mechanism (UM) that will

apply to NGET during RIIO-ET2 price control period.

4.2 Where a UM is common to all sectors or the ET sector, we do not repeat in this

chapter the rationale for any changes from Draft to Final Determinations, as this is

already set out in either the Core Document or the ET Annex.

4.3 Where a UM is directly related to our baseline Totex assessment, relevant details

can be found in Chapter 3.

ET UMs

Generation Connections volume driver / Demand Connections volume driver

Purpose: To ensure that TOs are funded through an automatic mechanism for load-

related capital expenditure required to connect new generators and new demand

customers seeking connection to the transmission system.

Benefits: Enabling ETOs to provide connections in a timely manner and consumer

payment reflecting efficient costs for actual connections delivered.


Determination

Type Volume driver

Form and values

of volume driver

based on

regression

analysis at the

time.

Volume

metrics

The following volume metrics are all measured relative

to the defined baseline levels for each company:

• the number of generation or demand

connection projects

• the incremental Connection Entry Capacity

(in Scotland) / Transmission Entry Capacity

(in England and Wales) for generation

connected to the network or the system

capacity associated with connection of

multiple new generation connections as

specified in relevant agreement between the

ETO and the ESO pursuant to the STC

• the incremental increase in the offtake

capacity at grid exit points associated with


70


Determination

connection of multiple new demand

connections as specified in relevant

agreement between the ETO and the ESO

pursuant to the STC • length of new build OHL

• length of reconductoring OHL

• length of new underground cables each

shorter than 1km; and

• length of new underground cables each equal

to or longer than 1km.

Delivery date

The connections volume driver will apply to works

anticipated to deliver within the RIIO-ET2 period and in

year 1 and year 2 of RIIO-3 (no later than 31st March

2028), except for:

• projects that NGET starts in RIIO-1 and

deliver in year 1 and year 2 of RIIO-2 are

funded via the existing respective RIIO-1

volume drivers;

• projects whose expected costs are beyond

the defined tolerance range (see detail

below) will be considered under the MSIP re-

opener.

Totex

baseline

allowances

Generation: £159.31 million (LE Entry) and £24.56

million (LE Entry - sole use)

Demand: £55.94 million (LE Exit) and £40.41 million

(LE Exit - sole use)

Baseline

outputs

profile

See table 10 and table 11.

The profiles reflect RIIO-ET2 originated projects.

Outputs associated with the delivery of RIIO-ET1/T2

crossover projects that are funded via the RIIO-1

volume driver have been excluded from the profiles in

tables 1 and 2.

Unit rates

Volume Metric

(Unit) Unit Rate

Number of

connection projects

(#)

£3.8m per project

Generation capacity

(MW or MVA) £[redacted] per MW or MVA

Demand capacity

(MW or MVA) £[redacted] per MW or MVA

New Build OHL(km) Outside volume driver

(See further detail below)

Reconductoring OHL

(km) £[redacted] per km

Underground Cable

<1km (km) £[redacted] per km

Underground Cable

= or >1km (km) £[redacted] per km


71


Determination

Reporting

method

Annual reporting on outturn and updated forecast costs

will be facilitated through the RRP.

Adjustment

mechanism

Adjustment to allowance (up or down) is the sum of:

the changes (higher or lower) from the baseline outputs

profile for all the seven output metrics multiplied by the

relevant unit rates as set out above.

Allowances will be profiled through this mechanism to

ensure adequate funding is provided to TOs. For this we

have assumed an average project lifespan of 4 years for

connections with costs spread in the following profile:

16.0%/31.5%/31.5%/21.0%.

Additional

requirements

An upper and lower tolerance range will be set based on

the standard error resulting from our regression

analysis multiplied by a factor of 1.5. Projects whose

expected costs are beyond this range will be funded

through MSIP. For NGET this provides a range between

plus and minus £11.84m around the allowance

calculated by the volume driver.

Indicated for

finalisation at FD

Applied to All ETOs with company-specific values No change

Licence

condition Special condition 3.18 n/a

4.4 The volume drivers will adjust the funding up or down from the baseline allowance

if any of the output metrics deviate from the baseline level as set out below.

Table 10: Baseline Generation Connections

Relevant Year

2021/22 2022/23 2023/24 2024/25 2025/26 TOTAL

MW or MVA 50 50 3,097 2,499 3,200 8,895

OHL

reconductoring

(km)

0 0 0 4.6 0 4.6

OHL new build

(km) See further detail below.

No.

connections 1 1 6 7 5 20

Cable new

build <1km

(km)

[redacted] [redacted] [redacted] [redacted] [redacted] [redacted]

Cable new

build =/> 1km

(km)



72

Table 11: Baseline Demand Connections

Relevant Year

2021/22 2022/23 2023/24 2024/25 2025/26 TOTAL

MW or MVA 0 0 720 480 0 1,200

OHL

reconductoring

(km)

0 0 0 0 0 0

OHL new build

(km) See further detail below

No.

connections 0 0 2 1 0 3

Cable new

build <1km

(km)


Cable new

build =/> 1km

(km)

[redacted] [redacted]

[redacted] [redacted] [redacted] [redacted]

Connection projects with new build OHL elements

4.5 There was insufficient data available to establish a statistically robust coefficient

that could be used as the basis of a unit rate to fund the construction and delivery

of new OHL build solutions for NGET. Therefore, in the event that a prospective

connection project comprised of a new build OHL element materialises during

RIIO-ET2, it will qualify for submission via the MSIP re-opener or the LOTI re-

opener (if it is likely to cost £100m or more). We have decided to attach a PCD to

a generation connection project that requires the construction and delivery of new

build OHL during the RIIO-ET2 period.

Large Onshore Transmission Investments (LOTI) re-opener

Purpose: To ensure that TOs are funded to undertake necessary large investments on

the transmission network.

Benefits: Allows Ofgem to scrutinise, on behalf of consumers, large transmission

investments at the point at which needs case and efficient costs can be scrutinised more

effectively.


73

UM parameter Final Determination Draft Determination


Re-opener window Any time during the price control Same as FD

Re-opener

materiality

threshold

ET projects expected to cost £100m or

more that are in whole or in part load-

related or related to a shared-use or

sole-use generator connection project.

Same as FD

Authority triggered

re-opener? No Same as FD

Additional

requirements

There is a four-stage assessment

process that ETOs must followed to

secure LOTI funding, unless otherwise

directed by Ofgem in accordance with

the relevant licence provisions. In

summary:

• Eligibility to apply – a short

notification to Ofgem

signaling an intent to use

the LOTI process.

• Initial Needs Case – an

early assessment of the

need for the project and its

initial optioneering.

• Final Needs Case – final

confirmation that the

project is required.

• Project Assessment –

detailed assessment of

project costs to determine

allowance - costs to be set

out in licence.

Broadly the same as FD,

though timings of stages

have been condensed

slightly, further to

consideration of DD

responses.



Pre-Construction Funding (PCF) re-opener

Purpose: To provide flexibility in the event that further PCF is required during the price

control period.

Benefits: Allows timely development of important strategic projects whilst protecting

consumers from providing PCF for speculative projects.

UM

parameter Final Determination Draft Determination


Re-opener

window Alongside an Initial Needs Case for a LOTI project

At the end of the price

control period


74

UM


Re-opener

materiality

threshold

There is no materiality threshold for the value of PCF

requested, but the re-opener can only be used to

request PCF for LOTI projects.

Same as FD

Authority

triggered re-

opener?

No Same as FD

Additional

requirements

Generally, we would only expect the PCF re-opener

to be used for projects which did not receive

baseline PCF PCDs (these are set out in company

annexes). However, where PCF costs are expected

to be more than double the amount provided for in

the baseline PCD allowance, submissions for

additional allowances can be submitted.

The definition of PCF is “the funding required to

develop a LOTI project to the point that consents

are obtained and the project is ready to begin

construction.”

PCF re-opener to be

used for projects which

did not receive

baseline PCF PCDs.

The definition of PCF

was “the funding

required to develop a

LOTI project to the

point that consents are

obtained.”


Licence


Medium Sized Investment Projects (MSIP) re-opener

Purpose: To ensure that ETOs are able to undertake necessary investments in the

transmission network, funding for which has not been provided in RIIO baseline

allowances.

Benefits: Allows Ofgem to scrutinise, on behalf of consumers, the need for and cost of

projects with more unusual characteristics.

UM



Re-opener

window

Each year of the price control between January

25th and January 31st. January 2024 only

Re-opener

materiality

threshold

One or more project(s) expected to cost less

than £100m each, which cumulatively exceed

0.5% of average annual ex-ante base revenue

when allowances are set.

Various thresholds,

specific to each area.

Authority

triggered re-

opener?

No Same as FD

Additional

requirements

Most areas covered by MSIP are driven by

circumstances outside of the control of the

ETOs, so submissions in respect of each area

Same as FD


75

UM


will be required to meet certain criteria in order

to be eligible for consideration under the MSIP

re-opener. These criteria are set out in Table

12.

Applied to All ETOs, with some exceptions set out in Table

12 below.

Some areas have been

added or removed since

DDs. See Table 12.

Licence


Table 12: Areas covered by the MSIP re-opener

Area Criteria for assessment under MSIP ETO

Atypical

connection

projects

Minimum and maximum intervals to determine instances of

material deviation between the predicted allowance generated

by the application of the volume driver unit rates to the total

forecast cost of each project. For NGET the upper and lower

thresholds are based on 1.5 times the standard error of the full

dataset used in the regression analysis: +/- £12m (std error

£7.9m x 1.5).

All

NOA ‘Proceed’

Projects

Only projects that that cannot be funded by the IWW volume

driver as set out. All

ESO-driven

requirements

Written request by the ESO for additional investment in relation

to system operability and constraint management requirements. All

Harmonic

Filtering

Equipment

Requests from ETO customers to aggregate and deliver

harmonic filtering requirements, or following ESO/TO system

studies showing a potential breach of planning limits.

All

Protection

Equipment

Protection changes required to address system issues following

ESO/ETO system studies and includes Operational Load

Management Schemes, subject to the receipt of an STC planning

request, and dynamic line rating equipment.

All

Energy Data

Taskforce

recommendations

Recommendations regarding specific outputs required to meet

principles developed via industry working groups (including

SCADA).

All

Projects to

maintain SQSS

compliance

ETO demonstration of the need to modify the network to meet

SQSS compliance for security and system operability. All

Black Start A new Black Start Standard, currently under review by BEIS. All

Flooding Updated ETR138 guidance on flooding, and/or a direction from

BEIS to protect sites from flooding. All

SF6 Asset

Intervention

Where ETOs can demonstrate efficient costs and asset

intervention at sites containing SF6, through a well-justified

intervention plan. Consideration should be given to retro-fill and

SF6 alternative gasses. We would expect only one submission in

this area per ETO during the RIIO-ET2 period.

All

NGET Resilience For Blackstart and Flooding upon completion of surveys for both

the needs case and costs of the original December 2019 RIIO-T2 NGET


76

Area Criteria for assessment under MSIP ETO

proposals. We would expect only one submission in this area

during RIIO-ET2.

Access Reform re-opener

Purpose: A mechanism to reduce Totex allowances if changes to industry codes arising

from our Access and forward-looking charges Significant Code Review (SCR) leads to a

reduction in network costs.

Benefits: This re-opener would ensure that consumers receive the benefits of changes

to transmission use of system charges and access rights through lower charges in a

timely manner.

UM parameter Final Determination Draft

Determination

UM type Re-opener

We sought

views in the DD

Core Document

on how the

Access review

may manifest in

its interaction

with elements

of the price

control.

Re-opener window Any time during the price control

Re-opener

materiality threshold 0.5% of average annual ex-ante base revenue

Authority triggered

re-opener? Exclusively Authority-triggered

Additional

requirements

Adjustments to baseline allowances and unit

rates for volume drivers, would be triggered if

there is a demonstrable likelihood of reduction in

costs as a result of industry code changes to

implement the outcome of our access and

forward-looking charges SCR.

Applied to All ETOs


Cross-sectoral UMs

Net Zero re-opener

Purpose: To introduce an increased level of adaptability into the RIIO-ET2 price control

by providing a means to amend the price control in response to changes connected to

the meeting of the Net Zero targets, which have an effect on the costs and outputs of

network licensees.

Benefits: To allow for necessary amendments within the RIIO-2 period, as opposed to

waiting until the settlement of the subsequent price control.


77


Determination


Re-opener

window At any time in RIIO-2 Same as FD

Re-opener

materiality

threshold

0.5% of average annual ex-ante base revenue

1% of average

annual ex-ante

base revenue

Authority

triggered re-

opener?

Yes Same as FD

Additional

requirements N/A Same as FD

Applied to All ET, GD, and GT companies Same as FD

Licence condition Special Condition 3.6 Same as FD

Coordinated Adjustment Mechanism (CAM) re-opener

Purpose: To enable a licensee to submit an application to reallocate responsibility and

associated revenue for an activity to or from another licensee’s price control (only where

the other licensee is in agreement, and there are demonstrable benefits to the

consumer).

Benefits: Delivers greater benefits for consumers by allowing more efficient solutions to

be taken up elsewhere in the system as they are identified, rather than tied to the initial

allocation.


Determination


Re-opener window Annual Open question


threshold No threshold Same as FD

Authority triggered

re-opener? No Same as FD

Additional

requirements

An application must have the agreement of all

licensees involved in the potential transfer.

The proposed new solution must demonstrate

greater benefits for the consumer than the

original solution.

Same as FD

Applied to All ET, GD, and GT companies. Same as FD



78

Opex Escalator

Purpose: To ensure NGET is funded through an automatic mechanism for varying

operational costs associated with capital investments delivered through UMs.

Benefit: Provides NGET with opex allowances when capex allowances are funded

through the relevant UM and ensures that those opex allowances are consistent with

those set for baseline allowances.

UM

Parameters Final Determination

Draft

Determination

Type Volume driver Same as FD

Volume Metrics

• The RAV addition measured in £m arising from

the new asset of specific load related UMs at

the point of energisation :

o Connection/demand volume driver

o MSIP re-opener

o LOTI re-opener

o Incremental Wider Works volume driver

o Tyne Crossing re-opener

o Bengeworth Road GSP re-opener

• The capex addition measured in % of the

baseline Capex allowance from specific UMs:

o Connection/demand volume driver

o MSIP re-opener

o LOTI re-opener

o Visual amenity in designated areas

provision

o Incremental Wider Works volume driver

o Tyne Crossing re-opener

o Bengeworth Road GSP re-opener

o Substation Civil Investment Works re-

opener

o Towers and Foundations re-opener

o Optel Fibre Wrap re-opener

Same as FD

Unit rates

Volume Metric (Unit) Unit Rate

Indicated values

to be set in FD RAV addition (£m)

0.5% per year

from the year of

energisation

Capex addition (% of baseline

Capex allowance £3606.0m)

0.734% of

baseline CAI


79

UM

Parameters Final Determination

Draft

Determination

allowance

(£829.7m) per 1%

of capex addition

Reporting

Method Annual RRP Same as FD

Adjustment

mechanism

Adjustment to opex allowance is the RAV addition

and Capex addition multiplied by the relevant unit

rates.

Same as FD

Applied to All ETOs with company-specific values Same as FD

Licence

condition

Applied to all relevant capex Uncertainty

Mechanism conditions N/A

IT Non-operational Capex Reopener

Purpose: To provide allowed expenditure to network companies to implement efficient

IT enhancements in support of the business systems and networks.

Benefits: Ensures network companies are able to achieve their IT strategy and meet the

aspiration of digitalising the energy sector.

UM


Draft

Determination


Re-opener

window

• Between 1 April 2021 and 8 April 2021; and

• between 25 January 2023 and 31 January

2023.

Same as FD

Re-opener

materiality

threshold

No materiality threshold Same as FD

Authority

triggered re-

opener?

Yes Same as FD

Additional

requirements

The licensee must submit to the Authority a Non-

operational capex IT Plan setting out:

(a) details of any proposed activities that the licensee

considers would be capable of improving its Non-

operational capex IT

(b) how the adjustment requested would improve its Non-

operational capex IT

(c) the basis of the calculations for the adjustment

requested to allowances

(d) provide detailed supporting evidence, as is reasonable

in the circumstances, which must include:

• improvement plans

• a prioritisation programme

• market and industry cost comparison

Same as FD


80

UM


Draft

Determination

• anticipated business benefits derived from any

risk reduction as a result of the proposed

activities.

Further guidance on the application process and content

can be found in the IT&T Non-operational capex reopener

guidance


Licence


Cyber Resilience Operational Technology (OT) and Cyber Resilience Information

Technology (IT)

Purpose: To reduce risk, improve cyber resilience and response outcomes on the

networks and comply with relevant regulations.

Benefits: Ensure network companies are managing risks posed to the security of the

network and information systems, and preventing and minimising the impact of incidents

on these essential services to ensure a safe and resilient network.

Cyber Resilience OT

UM


Draft

Determination


Re-opener

window

Two re-opener application windows for all network

companies available at the beginning of the price control

(2021), and midperiod (2023).

Same as FD

Re-opener

materiality

threshold

No materiality threshold and no aggregation. Same as FD

Authority

triggered re-

opener?

Yes Same as FD

Additional

requirements

All licensees required to submit application at first re-

opener window. Allowances will be provided on a UIOLI

basis.

Same as FD


Licence



81

Cyber Resilience IT


Determination


Re-opener window

Two re-opener application windows for all network

companies available at the beginning of the price

control (2021), and midperiod (2023).

Same as FD

Re-opener

materiality

threshold

No materiality threshold and no aggregation. Same as FD

Authority triggered

re-opener? Yes Same as FD

Additional

requirements

All licensees required to submit application at first re-

opener window. Allowance subject to ongoing

monitoring as part of outcome based PCDs.

Same as FD



NGET-specific UMs

Incremental Wider Works (IWW) volume driver

Purpose: To ensure that NGET is funded through an automatic mechanism to undertake

required incremental wider works investments.

Benefits: Enables NGET to respond quickly to changes in system requirements while

also driving a balance between efficiency and innovation incentives and mitigating

windfall gains or losses.

Final Determination

Output


Draft

Determination

Type Volume driver

We proposed to

use the MSIP re-

opener instead of

a volume driver.

Volume

metrics

For projects not containing works on overhead lines

or underground cables – “non-route projects”:

• “capacity increase” in MW which is the increased

capacity on one of the defined boundaries (as set

out in Table 12 below) as assessed when the

relevant project was submitted to the NOA

process which resulted in a “proceed” signal.

For projects containing works on overhead lines or

underground cables – “route projects”:


82

Output


Draft

Determination

• “composite capacity length” in MWkm which is the

capacity increase on the relevant defined

boundary multiplied by the pre-set boundary

length (as set out in Table 12 below)

• “route length” in km which is the circuit length of

reinforcement on overhead line, and the circuit

length of reinforcement on underground cable

multiplied by a cable length factor (as set out in

Table 13 below).

Delivery date

The IWW volume driver will apply to works

anticipated to deliver within the RIIO-2 period and in

year 1 and year 2 of RIIO-3 (no later than 31st March

2028).

Totex baseline

allowances N/A

Baseline

output profile N/A

Unit rates

Volume Metric (Unit) Unit Rate

Capacity increase (MW) 3.7397 £m/ln(MW)

Route length (km) 0.4102 £m/km

Composite capacity length

(MWkm) 0.7284 £m/ln(MWkm)

Reporting

method

Annual reporting on outturn and updated forecast

costs will be facilitated through the RRP.

Adjustment

mechanism

For “non-route projects”, the adjustment to allowance

is the unit rate for capacity increase multiplied by the

natural logarithm of the capacity increase delivered.

For “route projects”, the adjustment to allowance is

the sum of: the unit rate for route length multiplied

by the relevant route length, plus the unit rate for

composite capacity length multiplied by the natural

logarithm of the composite capacity length delivered.

The differences between outturn costs and the

allowances calculated by the IWW volume driver will

be scaled by an “IWW delivery adjustment factor”

equal to 50% before being subject to TIM.

Allowances will be profiled through this mechanism to

ensure adequate funding is provided to TOs. For this

we have assumed an average project lifespan of 4

years with costs spread in the following profile:

16%/26%/37%/21%.

Additional

requirements N/A


83

Output


Draft

Determination

Companies

applied to NGET

Licence

obligation Special Condition 3.31

Table 12: Defined boundaries and boundary length

Boundary name Boundary length (km)

B6 38.92

B6E 38.92

B6F 38.92

B6I 38.92

B6SPT 38.92

B7 100.66

B7a 72.82

B7aEF 72.82

B7aI 72.82

B7aRev 72.82

B8 39.32

B9 72.24

B10 68.75

B11 66.2

B12 53.93

B12a 91.15

B13 56.25

B14 35.57

B14e 35.57

B15 35.26

B16 87.62

B17 43.11

EC1 45.22

EC3 46.4

EC5 50.2

EC6 43.17

LE1 39.9

NW1 35.24

NW2 64.86

NW3 79.83

NW4 42.15

SC1 20.62

SC1Rev 20.62


84

Boundary name Boundary length (km)

SC2 47.68

SC2Rev 47.68

SC3 37.15

SW1 102.34

Table 13: Cable length factors

Type of underground cable Cable length factor

Single circuit 132kV [redacted]



Double circuit 132kV [redacted]



Final Determination rationale and Draft Determinations responses

4.6 At Draft Determinations we proposed to reject NGET’s proposal of using a volume

driver for IWW projects, and instead proposed to use a re-opener to assess

funding for new projects above those accepted in baseline, and to use PCDs to

hold NGET to account for delivery. Our key concern with the volume driver at the

time was the high degree of uncertainty in the relationship between efficient costs

and outputs, largely resulting from a wide range of potential engineering solutions

to deliver incremental boundary capacity.

4.7 Feedback from NGET and other stakeholders indicated that the use of a re-opener

and PCDs would be too inflexible to deal with potentially large volumes of work

during RIIO-2 and may impact on achieving Net Zero targets in the longer term.

4.8 In order to address Ofgem’s concerns, NGET has presented further analysis and

modifications to its proposal as follows:

• limiting the scope of the volume driver – link the baseline projects to the

PCD mechanism and only apply the volume driver to additional, non-

baseline projects

• excluding windfall impact of changing external circumstances – measure

boundary capacity output as when the project was submitted to the NOA

process which resulted in a “proceed” recommendation


85

• avoiding over reward on multiple boundaries – measure outputs on only

one leading boundary

• limiting undue windfall gains or losses from uncertainty – separate

projects according to whether they contain “route” work, i.e. on overhead

lines and/or underground cables; use the natural logarithm of relevant

outputs; and, scale any underspend or overspend by an IWW delivery

adjustment factor of 50% before being subject to TIM.

4.9 We have carefully considered the above and are of the view that these

modifications address our concerns as set out at Draft Determinations and help to

reach a reasonable balance between timely funding and limiting any windfall gains

or losses. We have therefore decided to implement such a volume driver in RIIO-

ET2 for NGET.

4.10 The volume driver will apply to projects delivering outputs on defined boundaries

by the end of the second year of RIIO-ET3. For all other IWW projects starting

within RIIO-ET2 and:

• Delivering outputs on new boundaries, funding will be considered via MSIP

• Delivering outputs more than two years after the start of RIIO-3, funding will

be considered via the MSIP re-opener or as part of the setting of RIIO-ET3.

Tyne Crossing Project re-opener

Purpose: To allow Ofgem to provide NGET with funding for works to remove the Tyne

Crossing and replace it with a suitable alternative.

Benefits: Ensure that the Tyne Crossing works can progress once the design and costing

has been approved by Ofgem.


Determination

UM type Re-opener We did not

consult on this

re-opener at

Draft

Determinations

and proposed

Re-opener window Any time during the price control

period

Re-opener materiality threshold No

Authority triggered re-opener? No

Additional requirements No


86


Determination

Applied to NGET MSIP be used

instead.

Licence condition Special Condition 3.35

Substation Civil Works re-opener

Purpose: To allow NGET to seek funding for a range civil works in their substations.

Benefits: Ensures an appropriate level of funding is provided following receipt of

sufficient levels of asset data from NGET.


Determination

UM type Re-opener

No proposed re-

opener in this

area.

Re-opener window May 2022 onwards


threshold No


opener? No


NGET will have to perform condition

assessments across a range of assets to

ensure that funding approved is required.

Applied to NGET


Bengeworth Road GSP Project re-opener

Purpose: To allow Ofgem to provide NGET with funding for works at Bengeworth Road

following confirmation of need.

Benefits: Ensure that the Bengeworth Road works can progress once the needs case

and technical design is approved by Ofgem.


Determination

UM type Re-opener We did not

consult on this

re-opener at

Draft

Determinations.

We approved

Re-opener window Any time during the price control period


threshold

0.5% of average annual ex-ante base

revenue


opener? Authority trigger only


87


Determination


NGET and UKPN will need to continue to

engage with Ofgem during early 2021 to

confirm the need for, and technical design

of, the works required at Bengeworth Road.

£25.4m in

baseline

funding.

Applied to NGET


Towers and Foundations re-opener

Purpose: To allow NGET to seek funding for a range of steel and foundation works on

Overhead Line routes.

Benefits: Ensures an appropriate level of funding is provided following receipt of

sufficient levels of asset data from NGET.


Determination

UM type Re-opener

No proposed

re-opener in

this area.

Re-opener window April 2022 onwards


threshold No

Authority triggered

re-opener? No

Additional

requirements

NGET will have to perform condition assessments

across a range of assets to ensure that we have

a clear picture of the network towers and

foundations before any submission.

Applied to NGET


Optel Fibre Wrap re-opener

Purpose: For NGET to present and seek funding for carrying out the replacement of

Optel fibre wrap based on a well-developed new solution and condition assessment

information.

Benefits: Ensures an appropriate level of funding based on the outputs of condition

assessments and solution development funded through a preliminary baseline allowance.


88


Determination

UM type Re-opener

No proposed re-

opener in this

area.

Re-opener window April 2023


threshold No materiality threshold


opener? No

Additional requirements Supporting evidence to be provided by NGET.

Applied to NGET



89

5. Innovation

5.1 This chapter sets out our Final Determination on NGET’s Network Innovation

Allowance (NIA) for the RIIO-ET2 price control period. Chapter 8 of the Core

Document also details our Final Determination on the RIIO-2 NIA framework and

on the Strategic Innovation Fund.

Network Innovation Allowance

Purpose: To fund innovation relating to the energy system transition and/or support for

consumers in vulnerable situations.

Benefits: The NIA will enable companies to take forward innovation projects that have

the potential to address consumer vulnerability and/or deliver longer–term financial and

environmental benefits for consumers, which they would not otherwise undertake within

the price control.

Final Determination

Network

Innovation

Allowance

NGET proposed

NIA (£m)

Ofgem Draft

Determination (£m)

Ofgem Final

Determination (£m)

Level of NIA

funding 75.6

49.3, conditional on an

improved industry-led

reporting framework.

49.3


5.2 We have decided that all network companies and the ESO will be able to access

NIA funding during RIIO-2, as they have satisfactorily evidenced that an improved

industry-led reporting framework will be in place for the start of RIIO-2 (see

Chapter 8 of the Core Document).

5.3 We have decided to award NGET £49.3m of NIA funding. This was the amount

that we proposed in our Draft Determination and which was supported by the

three respondents who directly commented on NGET’s NIA.

5.4 Citizens Advice and an academic both supported our assessment and the level of

NIA funding we proposed to award NGET. NGET expressed comfort with the


90

proposed level of NIA funding, but sought clarification about the RIIO-2 NIA

framework and what funds could be recovered via it. These issues are addressed

in Chapter 8 of the Core Document and full details of the RIIO-2 NIA framework

will be set out and consulted upon in the RIIO-2 NIA governance in due course.

5.5 Both the academic and NGET also noted the interlinkage to NGET’s CVP proposal

on the Deeside innovation centre and questioned whether NIA funds could

continue to support the centre. As noted in Chapter 2, we have decided to reject

this CVP but note that there may be scope for new innovation projects at the

centre to be supported via RIIO-2 NIA funding providing they satisfy the RIIO-2

NIA governance.


91

6. Totex Incentive Mechanism (TIM) and Business Plan

Incentive (BPI)

6.1 This chapter sets out our Final Determination for NGET on the TIM, and the BPI

and the rationale underpinning it. It also sets out key responses from the Draft

Determinations consultation and our views, where appropriate. Further details of

our decisions on the BPI at a cross-sectoral level and the rationale underpinning

them can be found in Chapter 10 of the Core Document.

Table 14: Summary of decisions for NGET’s BPI

BPI stage Final Determination

Stage 1 - Minimum requirements Fail. -£26.9m penalty

Stage 2 – CVP reward Not eligible due to Stage 1 failure 2 8F

28

Stage 3 – Low cost confidence penalty -£37.3m

Stage 4 – High cost confidence reward Not eligible due to Stage 1 failure 2 9F

29

Total -£64.15m Penalty

Totex Incentive Mechanism

6.2 The TIM is designed to encourage network companies to improve efficiency in

delivery and ensures that the benefits of these efficiencies are shared with

consumers. It also provides some protection to companies from overspends as the

costs of overspends are also shared with consumers.

Final Determination

Table 15: RIIO-2 TIM incentive rate for NGET

Licensee Draft Determination Final Determination

NGET 39.2% 33%

6.3 The main driver for the change in our Final Determination from our Draft

Determination position is the increased allowance of costs and volumes of work

which were rejected in our Draft Determination, and for which NGET provided

28 See Appendix 2 for value before eligibility exclusion. 29 £0m before eligibility exclusion


92

further justification information following our Draft Determination. These costs are

marked as lower confidence which results in a higher proportion of lower

confidence costs in Totex when compared to our Draft Determination. Other

updates on our cost confidence relating to NGET’s plan and our allowances are

explained in Chapter 3 of this document.

Stage 1 – Minimum requirements

Final Determination

6.4 Our decision is that NGET has not met the Business Plan minimum requirements

set out in our Business Plan Guidance (BPG) and therefore failed Stage 1 of the

BPI. Our rationale for this is set out in the sections below.

Our Draft Determination view

6.5 Our Draft Determination position was that NGET had not met the Minimum

Requirements set out in paragraphs 3.10, 3.12, 3.14 and 3.21 of the Business

Plan Guidance (BPG)3 0F

30. These failings were widespread and covered NGET’s cost

submission, EJPs and CBAs.

6.6 In our Draft Determination, we set out detailed reasons for our provisional

assessment of NGET’s submission relating to three of the most material cost areas

– Protection and Control, OHL Conductors and Fittings, and Circuit Breakers and

Bays. Our detailed explanation was set out in Appendix 4 of NGET Company Annex

Draft Determination. We have provided a summary below of our Draft

Determination assessment against these requirements:

• paragraph 3.10 of the BPG – This Minimum Requirement said that “we expect

companies to explain their costs/workload forecasts, particularly where these

diverge from historical trends.” For c.£1bn of its proposed asset health led

interventions, NGET proposed methodologies without the background

calculations, or sufficient explanation of why the forecast volume of

intervention varies from historical volumes and cost

• paragraph 3.12 of the BPG – The BPG stated that “Business Plans must clearly

set out the key drivers of expenditure for the RIIO-2 period - for example…

30https://www.ofgem.gov.uk/system/files/docs/2019/10/riio-2_business_plans_guidance_october_2019.pdf

https://www.ofgem.gov.uk/system/files/docs/2019/10/riio-2_business_plans_guidance_october_2019.pdf


93

conditions of assets/utilisation.” Evidence supporting the asset health

condition inputs was not provided. No reports on repairs, asset age

information, duty information, visual inspection reports or photographs of

individual assets were submitted. This required Ofgem and our consultants,

Atkins, to sample the interventions proposed and to request all contributory

information used to justify their inclusion

• paragraph 3.14 of the BPG – This paragraph of the BPG set out a number of

additional requirements for information to support cost forecasts. NGET did

not provide a clear rationale behind, or the assumptions used to assess, the

volume of work that it proposes to undertake, which in turn makes it difficult

for us robustly to assess its costs. Secondly, for non-lead assets where

categories of expenditure are more uncertain and more difficult to forecast

using historical/independent benchmarks, NGET did not consider mechanisms

that mitigate risk associated with uncertainty, and/or other evidence to justify

its submitted costs

• paragraph 3.21 of the BPG – The BPG stated that Cost Benefit Analyses

(CBAs) Engineering Justification Papers (EJPs) should “demonstrate evidence

of structured options development, including consideration of whole system

options and non-network options, where applicable, against a baseline

scenario which involves the minimum level of intervention that would be

required to remain compliant with all applicable regulation”. NGET did not

determine the minimum level of intervention required to remain compliant

with legislation and did not consider a reasonable range of credible investment

decisions. Due to the lack of detailed justification for asset health

interventions, NGET’s submission was not open to “scrutiny and challenge”,

nor was it “transparent about assumptions, inputs and rationale for decisions,

calculations and results”


6.7 We have decided to implement our Draft Determination position that NGET's BP

did not meet the minimum requirements (including those identified above), and

therefore failed Stage 1 of the BPI.

6.8 NGET responded to Draft Determinations on the detailed assessment points that

we had made in relation to the three most material cost areas, i.e. Protection and

Control, OHL Conductors and Fittings, and Circuit Breakers and Bays. The key


94

responses are considered below. NGET’s broader response points regarding the

BPI framework and the interactions between Stages 1 and 3 are considered in

Chapter 10 of the Core Document.

Protection and Control

6.9 In our Draft Determinations, we said that NGET had failed to provide information

that could explain the significant increase in intervention volumes and unit costs in

NGET’s business plan compared to RIIO-1. We said that NGET had not undertaken

an assessment of alternative options before deciding on its preferred solutions,

and it had not been transparent about its assumptions.

6.10 In its response, NGET said that a lack of explanation for the increase in

intervention volumes and costs should not be seen as a Stage 1 matter (i.e.

failure against minimum requirements), but rather as a Stage 3 matter (i.e. poor

justification for forecast costs). It argued that Ofgem has therefore ‘misapplied’ its

BPI framework.

6.11 NGET said that, in any case, it had provided sufficient information to support its

cost forecasts, including a consideration of alternative options, and that it had set

out the assumptions underpinning its forecasts. NGET specifically referred to one

page of its business plan EJP for Protection and Control.

6.12 Finally, it said that given the large number of assets operated by NGET, it is not

reasonable for Ofgem to require NGET to provide actual condition data to support

its forecasts.

6.13 We disagree with NGET’s response that this was a stage 3 rather than a stage 1

matter. The minimum requirements set out in our BPG are clear.

6.14 For instance, paragraph 3.10 of the BPG says: “in proposing costs for operating

and developing their networks, we expect companies to explain their

costs/workload forecasts, particularly where these diverge from historical trends”

(emphasis added). The BPG clearly stated the ‘explanatory’ aspect of the

minimum requirement, and it should have been clear to a well-informed licensee

such as NGET that, where there has been a divergence from historical trends, the

minimum requirement is to explain those costs/workload forecasts. It is our view

that NGET’s business plan did not contain information that could be reasonably


95

construed as an explanation of the costs and work volumes. For a cost category

with forecast costs in RIIO-2 of £497 million, the EJP contains a few lines about

asset age, asset lives and obsolescence as an explanation for the significant

increase in work volumes. This was not sufficient.

6.15 Paragraph 3.12 of the BPG required that “Business Plans must clearly set out the

key drivers of expenditure for the RIIO-2 period - for example, growth in demand,

conditions of assets/utilisation, legislative requirements, and any other relevant

drivers.” In response to DDs, NGET said that it did set out the key driver of

expenditure: “obsolescence rather than deteriorating condition or performance”.

However, as is the case with divergence from historical trends above, the

explanation provided is cursory and does not meet the minimum requirement in

our view. The drivers which were presented by NGET in the December submission

were, in general, unquantified and not listed to a specific asset, or asset class.

6.16 As an efficient operator of a large transmission network, we would expect NGET to

monitor and maintain a record of the condition of assets across its network. To do

so is necessary to ensure that its customers are protected. For P&C and all other

asset categories, it is our view that NGET would develop an asset health plan for

expenditure of £497 million without consideration of the actual condition and

performance of the assets that it proposes to replace as part of that plan.

6.17 Paragraph 3.13 of the BPG requires NGET to develop and assess options for

intervention, including ‘do nothing’ and ‘deferral’ options. NGET said that it had

considered different options as set out in its EJP. We do not consider that NGET’s

options assessment as set out in its EJP meets the minimum requirement as it

does not set out the associated scope for works and costing for those options. The

requirement to develop and assess options was a requirement to undertake a

meaningful comparison of feasible and credible options. NGET’s options

assessment involved four options; we noted that these were generic options,

supported by limited data on the need for these works and deliverability, and

therefore insufficient to enable us to evaluate the benefits or risks to the

consumer. This reinforces our view that the minimum requirement for option

development was not met in the December submission.


96

OHL Conductors and Fittings

6.18 In relation to OHL Conductors and Fittings, we said in our Draft Determinations

that NGET had failed to provide information that could explain the significant

increase in intervention volumes and unit costs in NGET’s business plan compared

to RIIO-1 as required by paragraph 3.10 of the BPG. We said that NGET had failed

to explain the drivers of the increase in expenditure, and that it had not explained

the basis for its assumed levels of asset degradation during the RIIO-2 period. We

also said that NGET had not undertaken an assessment of alternative credible

options before deciding on its preferred solutions as required by paragraphs 3.13

and 3.21 of the BPG.

6.19 NGET’s response in this area made very similar points to that made in relation to

Protection and Control costs as follows:

• The lack of explanation for the increase in intervention volumes and costs

should not be seen as a Stage 1 matter (i.e. failure against minimum

requirements), but rather as a Stage 3 matter (i.e. poor justification for

forecast costs). They argued that Ofgem has therefore ‘misapplied’ its BPI

framework.

• NGET said that, in any case, it had provided sufficient information to support

its cost forecasts, and it had included a consideration of alternative options in

its plan and had set out the assumptions underpinning its forecasts.

• Given the large number of assets operated by NGET, it said that it is not

reasonable for Ofgem to require NGET to provide actual condition data to

support its forecasts.

6.20 As set out in the section on Protection and Control, we do not agree that we have

misapplied the BPI framework. We consider that the minimum requirement was

set out in the BPG and that the information provided by NGET does not meet the

minimum requirement.

6.21 We do not accept NGET’s suggestion that it had met the minimum requirement to

consider options. In its response, NGET said “Ofgem’s position that NGET did not

consider “all credible options” is inconsistent with the Stage 1 Minimum

Requirements, which only requires “consideration of options”. In particular,

Ofgem’s assertion that NGET should have included one specific additional option is

not a material grounds for deeming the Minimum Requirements not to be met.


97

The Minimum Requirement under BPI stage 1 is not a test of the credibility or

exhaustiveness of options considered. This constitutes a quality appraisal

commensurate with a BPI Stage 3 assessment.”

6.22 We do not agree with NGET’s argument. The minimum requirement to consider

options, on a fair and reasonable interpretation, includes the requirement that at

least some of the alternative options considered would be credible – without which

the exercise would be rendered meaningless and not fit for purpose. The “one

specific additional option” that NGET refers to was mentioned by us as an example

of a credible option that NGET could have considered as part of its options

assessment but did not.

6.23 We have explained in the section on Protection and Control our reasons for

expecting NGET to provide asset condition data as part of its stage 1 business plan

submission. Those reasons apply to this minimum requirement.

Circuit Breakers and Bays

6.24 In relation to Circuit Breakers and Bays, we said in our Draft Determinations that

NGET had failed to provide information that could explain the significant increase

in intervention volumes and unit costs in NGET’s business plan compared to RIIO-

1. We said that NGET had failed to explain the drivers of the increase in

expenditure, and that it had not carried out an assessment of alternative credible

options before deciding on its preferred solutions.

6.25 NGET’s response in this area made very similar points to that made in relation to

the previous two cost areas, and we do not repeat the points to address NGET’s

response in the previous section as they apply equally here.

6.26 Paragraph 3.14 of the BPG says that Business Plans must provide “evidence of the

efficiency of their costs, for example as compared to historical benchmarks and/or

benchmarking with national and international comparators”. NGET argue that the

minimum requirements “do not require NGET to provide justification for increase

in costs in T2 compared to T1. Ofgem has misapplied its BPI framework.”

6.27 We disagree with NGET. There is a clear requirement to provide evidence of cost

efficiency, which could include comparisons with historical costs and/or


98

benchmarking with national and international comparators. We said in our Draft

Determinations that NGET had not provided that evidence in relation to bay costs.

6.28 We agree that NGET had provided some benchmarking information in relation to

Circuit Breaker and Bay equipment. Our concern with the benchmarking provided

was that it was not fit for purpose as NGET used ‘flat’ unit rates (e.g. the same

cost for all asset types), and it did not separately show the amounts added for

Risk and Contingency costs, and it therefore failed to provide evidence of the

efficiency of its costs. The use of flat unit rates does not allow us to establish the

scope used for the benchmarking against the NGET scope, which does not include

the site specific and risk factors included. Our position is that this is not a credible

benchmarking exercise and therefore fails to meet the minimum requirement.

6.29 In relation NGET’s options assessment, we said in our Draft Determinations that

NGET had not carried out a credible options assessment due to the lack of

consideration of a meaningful baseline scenario as required by the minimum

requirement. NGET said that Ofgem’s position amounts to a “quality appraisal

which should be carried out under Stage 3 of the BPI and so Ofgem has

misapplied its BPI framework”. NGET pointed to the options assessment that it

had described in its EJP, and said that that assessment is sufficient to meet the

minimum requirement. However, for similar reasons as set out above, we consider

that the options assessment should meet a minimum standard before it can be

considered to have met the minimum requirement – which involves the

consideration of a meaningful baseline scenario. We maintain our view that NGET

had not done this.

6.30 In relation to the baseline option considered by NGET, it said that it was not

practical to model the scenario of minimum intervention as required by the BPG

minimum requirements, and that it had taken a proportionate approach. Again,

we disagree that the minimum requirement in this area is disproportionate or

impractical. The forecast expenditure by NGET in this category was £264m, and

we think the analysis undertaken by NGET to support its optioneering was lacking

to the extent that it constitutes a failure of minimum requirements.

Views of the Independent Challenge Group

6.31 Prior to Final Business Plan submission, The Independent Challenge Group report

into NGET’s draft and final business plans had also raised a number of concerns


99

about the lack of information on these areas in NGET’s plan which NGET had time

to consider ahead of finalising its Business Plan. For instance:

• On the overall asset health category, the report says “Overall, NGET have

provided more limited evidence than we would have expected to justify an

estimated additional £1.5bn in asset health expenditure above current levels.”

• On its proposed intervention volumes, the report says “The engineering

justifications and need cases are very generic. We do not think there is

acceptable evidence for the volumes of intervention, and little evidence from

actual asset condition.”

• On its options assessment, the report says “The option assessments are high

level. We do not think that all options have been fully considered and that

there is an appropriate balance between risk and value for money e.g. lower

cost refurbishment has not been fully considered”.

• On the content of EJPs, the report said “NGET’s CBAs and EJPs in the final

Plan are in many cases generic, with some seeking to justify large sums of

expenditure for major work programmes in one lump, rather than being at a

project-level and site specific. We found the EJPs more useful than the CBAs,

which conveyed little additional useful information, and appeared to be quite

limited in detail. A number of variables (for example transformer losses) that

we would have expected to see modelled, were left blank. The EJPs and CBAs

taken together as a suite are also quite hard for the reader to navigate, in

part because figures do not always seem to align between different sources.

Following our request in October, the naming of assets for intervention in

some of the December EJPs is an improvement, but we would like to have

seen specific EJPs and CBAs for what are individually significant expenditure

proposals, and recommend that Ofgem reviews these when they are made

available. There was evidence that NGET had considered options as part of

their CBA process, for example between refurbishment or replacement, or

between intervening in the RIIO-2 period or waiting until a future period, but

again these are on the whole presented as generic assessments. Overall, the

final EJPs were disappointing and without asset specific justifications, we

found it difficult to gain confidence over the cost certainty in the proposals.”

6.32 Overall, we believe that the Independent Challenge Group report provides

additional independent corroboration to our position that NGET’s plan contained


100

significant and material gaps and omissions in relation to the stage 1 minimum

requirements.

Views of independent engineering consultants

6.33 We commissioned Atkins to support our review of NGET’s engineering

submissions. Atkins provided a report which we published alongside our DDs.

6.34 Atkins reviewed 29 Investment Decision Packs (IDPs) submitted by NGET,

covering forecast expenditure of over £4.7 billion. Of these, Atkins gave a ‘RED’

rating (representing the highest risk to consumers) to 13 IDPs, which together

covered £2.2 billion of costs.

6.35 On the quality of information provided by NGET in its IDPs, the report highlights a

number of gaps and omissions in information provided, and concludes that

“overall, the papers were lacking in detail requiring a significant number of SQs”.

Further details of gaps identified are set out in the Atkins report.

Conclusions

6.36 As set out in the examples above and in the Core Document, we believe that

NGET’s plan had multiple failings against our BPG minimum requirements. These

were not isolated errors, but systemic failings in relation to the minimum required

content of the plans. The lack of detail and justification shown in its Business Plan

for high value expenditure areas, in particular where this involved significant

increases over RIIO-ET1 expenditure, has undermined our confidence in NGET’s

Business Plan. These failings also had a material impact on our ability to assess its

Business Plan in a timely and robust manner. Significant resource needed to be

dedicated to resolving the multiple issues in NGET’s plan, including through

supplementary questions and significant bilateral engagement to try to obtain

information including the minimum required.

6.37 In its consultation response, NGET has sought to portray its failings as being

related to the quality of its costs justification rather than gaps or omissions

amounting to a failure to meet minimum requirements. We disagree with this

position. We have reached the view that there has been a failure of minimum

requirements only in circumstances where the minimum required information or

analysis is lacking. That is a different question from the analysis at Stage 3, ie

whether the information or analysis provided (taking into account all information,


101

including that received after initial BP submission date in response to SQs or

otherwise) justifies the requested amount of the low confidence cost or not.

6.38 We do not consider that NGET’s response to Draft Determinations provides

sufficient reasoning to change our Draft Determination position that NGET has not

met the minimum requirements and, therefore, it is our Final Determination

decision that NGET has failed Stage 1 of the BPI.

6.39 For the avoidance of doubt, we have not attempted to set out an exhaustive list of

all the different ways in which NGET’s plan fails to meet the minimum

requirements across all cost areas. Our aim was to highlight some prominent

failings in the more material areas of NGET’s plan.

Impact of the BPI Stage 1 failings on our assessment

6.40 Given that we could not scrutinise or challenge the justifications for asset health

interventions in NGET's December Business Plan, to enable us to carry out our

assessment beyond stage 1, we requested the missing information from NGET via

our SQ process. Overall, we raised over 425 SQs, and over 240 of these were

engineering questions which focused predominantly on the justification necessary

to support NGET’s proposed interventions.

6.41 After discussions with NGET during our review process for Draft Determinations,

we received a further submission in September 2020 which was significantly more

detailed. We note that this was after our 7-month assessment window and

publication of our Draft Determinations. This had a significant impact on our ability

to assess and form a consultation position as it was all information that should

have been provided in December 2019. NGET was already aware of the

shortcomings of its Plan in some areas, further to the Independent Challenge

Group Report, as set out above.

6.42 Despite the compressed timescales, we carried out a review of the additional

information submitted in September, post DDs, and this has significantly changed

the position with regards to NGET’s allowances. We note that there was limited

‘new’ data in this submission and that the majority of this information could have

been presented in the December plan, had NGET chosen to do so.


102

Stage 2 – Consumer Value Propositions

6.43 NGET has failed Stage 1 minimum requirements and is therefore not eligible to

receive rewards under Stage 2 of the BPI. For details of our Final Determination

on NGET’s CVP proposals see Appendix 2.

Stage 3 - Low cost confidence penalty

6.44 We have decided that NGET will incur a £37.3m penalty following our BPI Stage 3

assessment. Table 16 sets out our decisions across all cost categories.

Table 16: Summary of decisions for stage 3 disallowance penalty.

Cost category Poorly justified lower confidence

cost disallowance(£m)

BPI stage 3

penalty (£m)

Load Related Capex 0 0

Non-Load Related capex 337.9 33.8

Indirect opex 0 0

Non-Operational capex 0 0

Network Operating Costs 34.7 3.5


6.45 In our DDs, we consulted on our provisional assessment that NGET would receive

a penalty of £179.6m under BPI Stage 3.

6.46 Following DDs, we have considered responses including the further justification

provided by NGET and taken it into account to approve an increased allowance of

costs and volumes of work which we had proposed to reject in our Draft

Determinations. Further details of these changes and our rationale for making

them are set out in Chapter 3 of this document.

6.47 NGET’s Stage 3 penalty has reduced to £38.3m at FDs as a result of these

changes.

Stage 4 – High cost confidence reward

6.48 NGET has failed Stage 1 Minimum Requirements and is therefore not eligible to

receive rewards under Stage 4 of the BPI.


103

Appendices

List of appendices

1. Summary of decisions – bespoke outputs 117

2. Summary of decisions – CVPs 103

3. Summary of decisions – bespoke UMs 103


104

Appendix 1 : Additional Information

Table A1.1: Environmental Scorecard ODI-F annual reward and penalty

thresholds

Percentage

change Year Penalty thresholds

EAP

commitment Reward thresholds

a) Reduction in

business mileage

emissions

Baseline:

2019/20 emissions

2021/22 -0 -1 -2 -3 -4

2022/23 -2 -3 -4 -5 -6

2023/24 -4 -5 -6 -7 -8

2024/25 -5 -6 -8 -10 -12

2025/26 -6 -8 -10 -12 -14

b) Office and

operational waste

recycling rate

2021/22 40 44 48 52 56

2022/23 42 46 50 54 58

2023/24 45 49 53 57 61

2024/25 49 53 57 61 65

2025/26 50 55 60 65 70

c) Office waste by

weight

Baseline:

2019/20 waste in

tonnes

2021/22 0 -1 -2 -3 -4

2022/23 -2 -3 -4 -5 -6

2023/24 -3 -5 -6 -7 -9

2024/25 -4 -6 -8 -10 -12

2025/26 -10 -15 -20 -25 -30

d) Office water use

Baseline:

2019/20 water in

cubic metres

2021/22 0 -1 -2 -3 -4

2022/23 -2 -3 -4 -5 -6

2023/24 -3 -5 -6 -7 -9

2024/25 -4 -6 -8 -10 -12

2025/26 -10 -15 -20 -25 -30

e) Environmental

value of non-

operational land

Baseline:

2019/20 natural

capital valuation

2021/22 0.2 0.6 1 1.4 1.8

2022/23 1.45 1.85 2.25 2.65 3.05

2023/24 1.45 1.85 2.25 2.65 3.05

2024/25 1.45 1.85 2.25 2.65 3.05

2025/26 1.45 1.85 2.25 2.65 3.05

f) Environmental

net gain on

projects affecting

the local

environment:

Baseline target:

10%

All years

in RIIO-

T2

Single penalty threshold Single reward threshold

5 15


105

Table A1.2: Environmental Scorecard incentive values

Impact area Values used to calibrate incentive rate

a) Reduction in business

mileage emissions

Non-traded value of carbon, HMT Green Book Supplementary

Guidance31F31

Nitrogen Oxide (NOx) air quality damage cost, DEFRA Air Quality

Damage Guidance Cost Appraisal 32F32

Particulate Matter air quality damage cost, DEFRA Air Quality

Damage Guidance Cost Appraisal

b) Operational and office

waste recycling


Guidance

Government Landfill tax, HRMC33F33

c) Reduction in waste

created at NGET offices As above

d) Reduction in water use

for main offices


Guidance

e) Increase in

environmental value of

non-operational land

Estimates of natural capital value using National Grid’s Natural

Capital Valuation tool 34F

34

f) Environmental net gain

on all construction

projects

Based on replacement cost plus 10% margin

Table A1.3: Network Operating Costs allowances against NGET submission

Network

Operating

Costs

Category

NGET

Proposed

Baseline

(£m)

Work/Volume

Reduction

(£m)

Cost

Reduction

(£m)

Work

Volume

Reductions

subject to

UM (£m)

Ofgem

Baseline

Allowance

(£m)

Faults 1.0 0.0 0.0 0.0 1.0

Inspections 96.7 0.0 0.0 0.0 96.7

Repairs and

Maintenance

422.3 13.0 16.8 1.4 391.1

Vegetation

Management

30.3 0.0 0.0 0.0 30.3

Operational

Protection

186.9 84.9 0.0 34.6 67.4

31 Valuation of energy use and GHG emissions appraisal: https://www.gov.uk/government/publications/valuation-of-energy-use-and-greenhouse-gas-emissions-for-appraisal

32 Air quality appraisal - damage cost guidance: https://www.gov.uk/government/publications/assess-the-impact-of-air-quality/air-quality-appraisal-damage-cost-guidance 33 Environmental taxes, reliefs and schemes for businesses: https://www.gov.uk/green-taxes-and-reliefs/landfill-tax 34 For more information on NGET’s Natural Capital Valuation tool: https://www.nationalgrid.com/uk/electricity-transmission/caring-natural-environment

https://www.gov.uk/government/publications/valuation-of-energy-use-and-greenhouse-gas-emissions-for-appraisal

https://www.gov.uk/government/publications/valuation-of-energy-use-and-greenhouse-gas-emissions-for-appraisal

https://www.gov.uk/government/publications/assess-the-impact-of-air-quality/air-quality-appraisal-damage-cost-guidance

https://www.gov.uk/government/publications/assess-the-impact-of-air-quality/air-quality-appraisal-damage-cost-guidance

https://www.gov.uk/green-taxes-and-reliefs/landfill-tax

https://www.gov.uk/green-taxes-and-reliefs/landfill-tax

https://www.nationalgrid.com/uk/electricity-transmission/caring-natural-environment

https://www.nationalgrid.com/uk/electricity-transmission/caring-natural-environment


106

Network

Operating

Costs

Category

NGET

Proposed

Baseline

(£m)

Work/Volume

Reduction

(£m)

Cost

Reduction

(£m)

Work

Volume

Reductions

subject to

UM (£m)

Ofgem

Baseline

Allowance

(£m)

Measures and

IT Capex

Legal and

Safety

247.9 0.0 17.1 93.9 136.9

Total 985.135 97.9 33.9 129.9 723.4

Table A1.4: Non-operational Capex allowances against NGET submission

Non-Op

Capex

category

NGET

proposed

baseline

(£m)

Work

Volume

Reductions

(£m)

Cost

Reductions

(£m)

Work Volume

Reductions subject

to UM (£m)

Ofgem FD

Baseline

Allowances (£m)

Property 10.0 0.0 0.0 0.0 10.0

IT&T 337.0 0.0 26.1 72.6 238.3

STEPM 9.3 0.0 4.8 0.0 4.5

Vehicles

&

Transport

20.6 0.0 0.0 0.0 20.6

Total 376.9 0.0 30.8 72.6 273.5

Table A1.5: Business Support Costs allowances against NGET submission

BSC

Category

NGET

Proposed

Baseline

(£m)

Work

Volume

Reduction

(£m)

Cost

Reduction

(£m)

Work

Volume

Reductions

subject to

UM (£m)

Ofgem

Baseline

Allowance

(£m)

Information

Technology &

Telecoms

(IT&T)

98.0 0.0 0.0 0.0 98.0

Property

management 68.2 0.0 0.0 0.0 68.2

Audit,

finance, and

regulation

97.4 0.0 0.0 0.0 97.4

HR and non-

operational

training

29.8 0.0 0.0 0.0 29.8

35 £985.1m is £1174.6m less £202.4m of Visual Amenity, plus £15.6m of embedded efficiency, less £2.8m of SF6 Repair costs moved from NOCs to NLR Capex.


107

BSC

Category

NGET

Proposed

Baseline

(£m)

Work

Volume

Reduction

(£m)

Cost

Reduction

(£m)

Work

Volume

Reductions

subject to

UM (£m)

Ofgem

Baseline

Allowance

(£m)

Insurance 75.3 0.0 0.0 0.0 75.3

Procurement

34.5 0.0 0.0 0.0 34.5

CEO and

group

management

55.2 0.0 0.0 0.0 55.2

Total 458.4 0.0 0.0 0.0 458.4

Table A1.6: Closely associated indirect costs allowances against NGET

submission

CAI Cost

Category

NGET

Proposed

Baseline

(£m)

Work

Volume

Reduction

(£m)

Cost

Reduction

(£m)

Work

Volume

Reductions

subject to

UM (£m)

Ofgem

Baseline

Allowance

(£m)

Operational IT

& Telecoms 87.3 0.0 0.0 0.0 87.3

Project

management 487.8 30.7 97.7 0.0 359.4

Network

design and

engineering

64.1 4.4 7.6 0.0 52.0

System

mapping 0.0 0.0 0.0 0.0 0.0

Engineering

management

and clerical

support

222.5 14.5 38.3 0.0 169.7

Network

policy

(including

R&D)

12.8 0.8 2.2 0.0 9.7

Health,

safety, and

environment

(HSE)

7.6 0.6 0.4 0.0 6.6

Operational

training 61.5 0.0 0.0 0.0 61.5


108

CAI Cost

Category

NGET

Proposed

Baseline

(£m)

Work

Volume

Reduction

(£m)

Cost

Reduction

(£m)

Work

Volume

Reductions

subject to

UM (£m)

Ofgem

Baseline

Allowance

(£m)

Store and

logistics 8.2 0.6 0.9 0.0 6.7

Vehicles and

transport 17.6 1.2 2.0 0.0 14.4

Market

facilitation 0.1 0.0 0.0 0.0 0.1

Network

planning 81.4 5.3 13.9 0.0 62.2

Total 1050.9 58.1 163.1 0.0 829.7

Table A1.7: LRE schemes started in RIIO-ET1 crossing into RIIO-ET2

Scheme reference NGET RIIO-ET2 request (incl.

indirect opex), £m

Ofgem RIIO-ET2 allowance

(excl. indirect opex), £m

NGT2002 15.76 13.24

NGT2005 0.08 0.07

NGT20011 14.92 12.53

NGT20012 52.93 44.46

NGT20022 1.31 1.10

NGT20026 16.36 13.74

NGT20032 5.46 4.59

NGT20043 0.70 0.59

NGT20048 1.05 0.89

NGT20057 12.05 10.12

NGT20061 11.16 9.37

NGT20063 0.29 0.25

NGT20071 19.46 16.35

NGT20085 20.95 17.60

NGT20089 1.83 1.54

NGT20091 26.09 22.17

NGT200101 12.70 10.66

NGT200104 0.04 0.03

NGT200115 2.71 2.28

NGT200117 14.03 11.79


109


indirect opex), £m



NGT200119 19.34 16.25

NGT200123 7.48 6.28

NGT200125 4.39 3.69

NGT200130 2.64 2.22

NGT200132 1.23 1.03

NGT200134 2.40 2.01

NGT200138 2.40 2.02

NGT200152 0.53 0.45

NGT200158 2.80 2.35

NGT200166 2.64 2.22

NGT200168 0.75 0.63

NGT200182 11.93 10.02

NGT200186 3.85 3.23

NGT200188 29.71 24.95

NGT200192 0.47 0.39

NGT200196 4.08 3.42

NGT200201 2.01 1.70

NGT200204 0.88 0.74

NGT200213 5.26 4.42

NGT200223 5.24 4.40

NGT200224 10.51 8.83

NGT200226 5.66 4.75

NGT200231 3.71 3.12

NGT200235 19.26 16.18

NGT200267 5.61 4.71

NGT200269 27.78 23.34

NGT200283 506.59 425.53

Table A1.8: RIIO-ET2 schemes under the Generation/demand volume drivers

Scheme

reference

NGET RIIO-ET2 request (incl.

indirect opex), £m



NGT20026 16.36 13.74

NGT20041 2.05 1.72

NGT20046 0.65 0.54

NGT20048 1.05 0.89


110

Scheme

reference

NGET RIIO-ET2 request (incl.

indirect opex), £m



NGT20050 63.52 53.36

NGT20052 1.17 0.98

NGT20054 1.02 0.85

NGT20071 19.46 16.35

NGT20073 10.19 8.56

NGT20097 14.39 12.09

NGT200112 30.59 25.70

NGT200114 7.81 6.56

NGT200117 14.03 11.79

NGT200119 19.34 16.25

NGT200126 3.20 2.69

NGT200128 1.00 0.84

NGT200130 2.64 2.22

NGT200132 1.23 1.03

NGT200134 2.40 2.01

NGT200136 0.60 0.50

NGT200138 2.40 2.02

NGT200140 0.77 0.65

NGT200142 2.28 1.92

NGT200144 0.66 0.56

NGT200146 2.68 2.25

NGT200148 0.89 0.75

NGT200154 0.12 0.10

NGT200156 0.03 0.03

NGT200158 2.80 2.35

NGT200160 1.40 1.18

NGT200162 3.70 3.11

NGT200164 1.30 1.09

NGT200170 0.16 0.13

NGT200172 0.03 0.03

NGT200182 11.93 10.02

NGT200196 4.08 3.42

NGT200217 8.05 6.77

NGT200219 10.19 8.56


111

Table A1.9: NLRE schemes starting in RIIO-ET1 and crossing into RIIO-ET2


indirect opex), £m



NGNLT204 5.11 4.29

NGNLT206 126.48 106.24

NGNLT207 3.68 3.09

NGNLT208 5.85 4.91

NGNLT2018 1.41 1.29

NGNLT2021 37.73 31.69

NGNLT2025 55.61 46.72

NGNLT2032 5.60 4.71

NGNLT2035 4.44 3.73

NGNLT2036 4.84 4.07

NGNLT2040 8.86 7.44

NGNLT2041 11.01 9.25

NGNLT2042 28.05 23.68

NGNLT2044 23.85 20.46

NGNLT2045 5.49 4.61

NGNLT2046 4.78 4.01

NGNLT2056 3.43 2.88

NGNLT2058 1.89 1.59

NGNLT2060 23.07 19.38

NGNLT2062 0.87 0.73

NGNLT2064 71.14 59.76

NGNLT2071 6.25 5.25

NGNLT2072 23.55 19.78

NGNLT2079 5.31 4.46

NGNLT2081 5.06 4.25

NGNLT2084 5.64 4.74

NGNLT2086 0.06 0.05

NGNLT2088 4.09 3.43

NGNLT2090 4.39 3.68

NGNLT2096 3.29 2.76

NGNLT2098 4.98 4.19

NGNLT20100 2.39 2.01

NGNLT20101 4.14 3.47

NGNLT20102 2.98 2.50


112


indirect opex), £m



NGNLT20103 3.56 2.99

NGNLT20104 2.38 2.00

NGNLT20107 5.40 4.53

NGNLT20108 1.01 0.85

NGNLT20109 1.71 1.44

NGNLT20112 0.66 0.55

NGNLT20117 3.18 2.67

NGNLT20134 3.93 3.30

NGNLT20135 4.59 3.85

NGNLT20141 0.06 0.05

NGNLT20142 2.04 1.71

NGNLT20144 1.99 1.67

NGNLT20153 10.61 8.91

NGNLT20155 11.24 9.44

NGNLT20165 10.95 9.20

NGNLT20166 5.66 4.75

NGNLT20168 3.81 3.20

NGNLT20176 2.64 2.22

NGNLT20178 3.88 3.26

NGNLT20187 6.49 5.45

NGNLT20188 4.72 3.96

NGNLT20199 0.83 0.70

NGNLT20205 0.39 0.33

NGNLT20206 1.10 0.93

NGNLT20213 1.08 0.90

NGNLT20226 1.25 1.05

NGNLT20236 18.16 15.25

NGNLT20237 18.32 15.39

NGNLT20247 8.78 7.37

NGNLT20248 7.38 6.20

NGNLT20254 10.80 9.07

NGNLT20255 36.32 30.51

NGNLT20257 21.16 17.77

NGNLT20263 3.12 2.62

NGNLT20272 1.65 1.38

NGNLT20273 5.19 4.36


113


indirect opex), £m



NGNLT20274 0.34 0.28

NGNLT20277 10.14 8.52

NGNLT20278 7.78 6.54

NGNLT20284 3.81 3.20

NGNLT20297 4.59 3.85

NGNLT20298 4.59 3.85

NGNLT20299 4.59 3.85

NGNLT20302 5.56 4.67

NGNLT20304 6.74 5.66

NGNLT20323 0.04 0.03

NGNLT20324 0.05 0.04

NGNLT20325 0.05 0.04

NGNLT20326 2.98 2.50

NGNLT20327 0.02 0.02

NGNLT20328 0.45 0.37

NGNLT20329 1.84 1.55

NGNLT20330 3.24 2.72

NGNLT20331 2.92 2.45

NGNLT20332 3.44 2.89

NGNLT20338 3.05 2.56

NGNLT20339 1.15 0.97

NGNLT20340 1.70 1.43

NGNLT20341 0.85 0.72

NGNLT20343 1.50 1.26

NGNLT20344 0.16 0.13

NGNLT20346 1.98 1.66

NGNLT20347 1.25 1.05

NGNLT20348 1.51 1.27

NGNLT20354 0.30 0.25

NGNLT20376 0.46 0.39

NGNLT20377 2.25 1.89

NGNLT20378 5.22 4.38

NGNLT20379 0.02 0.14

NGNLT20380 0.06 0.05

NGNLT20381 0.46 0.39

NGNLT2074 7.22 6.06


114


indirect opex), £m



NGNLT20303 5.56 4.67

NGNLT20342 0.48 0.40

Table A1.10: LRE projects starting in RIIO-ET2 crossing in to RIIO-ET3

Scheme reference NGET request (incl. indirect

opex), £m

Ofgem allowance (excl.

indirect opex), £m

NGT20024 3.28 2.75

NGT20050 63.52 53.36

NGT20070 1.30 1.09

NGT200144 0.66 0.56

NGT200148 0.89 0.75

NGT200156 0.03 0.03

NGT200170 0.16 0.13

NGT200172 0.03 0.03

NGT200217 8.05 6.77

NGT200219 10.19 8.56

NGT200240 2.61 2.19

NGT200241 0.26 0.22

NGT200244 0.01 0.01

NGT200249 1.46 1.23

NGT200250 0.39 0.33

NGT200252 0.13 0.11

NGT200253 0.13 0.11

NGT200258 0.19 0.16

NGT200259 6.34 5.32

NGT200260 2.68 2.25

NGT200261 3.94 3.31

NGT200275 0.44 0.37

NGT200279 5.86 4.93

Table A1.11: NLRE projects starting in RIIO-ET2 crossing in to RIIO-ET3


indirect opex), £m



NGNLT201 3.49 2.93


115


indirect opex), £m



NGNLT2019 0.01 0.01

NGNLT20149 4.45 3.74

NGNLT20161 19.33 16.24

NGNLT20162 0.06 0.05

NGNLT20163 0.49 0.41

NGNLT20164 0.84 0.70

NGNLT20171 7.26 6.10

NGNLT20172 0.24 0.20

NGNLT20173 0.05 0.04

NGNLT20174 0.74 0.62

NGNLT20184 6.07 5.10

NGNLT20185 1.58 1.32

NGNLT20186 1.01 0.85

NGNLT20192 0.14 0.12

NGNLT20193 0.06 0.05

NGNLT20196 7.88 6.62

NGNLT20197 0.34 0.28

NGNLT20198 0.80 0.67

NGNLT20202 0.34 0.29

NGNLT20203 0.06 0.05

NGNLT20204 0.03 0.03

NGNLT20209 0.91 0.76

NGNLT20210 0.06 0.05

NGNLT20211 0.03 0.02

NGNLT20216 1.61 1.35

NGNLT20217 0.31 0.26

NGNLT20218 0.14 0.11

NGNLT20240 17.78 14.93

NGNLT20241 0.98 0.82

NGNLT20256 45.65 38.34

NGNLT20268 1.48 1.24

NGNLT20276 5.78 4.86

NGNLT20281 2.30 1.93

NGNLT20282 2.30 1.93

NGNLT20288 3.88 3.26

NGNLT20289 0.06 0.05


116


indirect opex), £m



NGNLT20320 4.99 4.19

NGNLT20321 4.45 3.74

NGNLT20322 4.45 3.74

NGNLT20335 0.01 0.01

NGNLT20352 0.37 0.31

NGNLT20359 0.07 0.06

NGNLT20360 0.08 0.06

NGNLT20362 1.90 1.60

NGNLT20363 0.01 0.01

NGNLT20364 0.51 0.43

NGNLT20371 0.29 0.25

NGNLT20372 0.14 0.12

NGNLT20375 4.85 4.07

NGNLT20389 0.08 0.06

NGNLT20390 0.04 0.03

NGNLT20391 0.29 0.24

NGNLT20392 0.15 0.13

NGNLT20393 0.07 0.06

NGNLT20395 0.51 0.43

NGNLT20396 0.14 0.12

117

Appendix 2 : Summary of decisions – bespoke outputs

Table A2.1: NGET’s bespoke ODI proposals

ODI name and

description

Ofgem’s Draft

Determination summary

Consultation response summary Ofgem’s Final

Determination

Environmental

Scorecard: NGET

proposed an ODI-F to

reward/penalise its

performance in seven

environmental areas

compared to an annual

target improvement in

each area.

Accept: We proposed to

accept the bespoke ODI-F

subject to three

modifications relating to

the scope and weighting,

the target measure for one

impact area related to

operational fleet, and re-

calibrating the incentive

rate to reflect the

economic value of the

environmental benefit

delivered in each impact

area.

We received five responses from stakeholders who

supported the approval of the ODI-F and our

proposed modifications.

Accept: We have decided to

accept the ODI-F for six of

the seven areas consulted on

in DD. We have also decided

to re-calibrate the incentive

rate for each impact area.

Further information on our

decision can be found in

Chapter 2 of this document.

Accelerating low

carbon connections:

NGET proposed an ODI-F

to incentivise it to deliver

shorter connection lead

times to get new

generation onto the

network more quickly.

Reject: We proposed to

reject this ODI-F as we

thought that it would be

difficult to set a meaningful

and challenging baseline

and to differentiate the

effect of an ETO's genuine

effort to accelerate

connection from the effect

of additional contingency

We received 9 responses to NGETQ3.

Two responses agreed with our view that it would be

difficult to establish meaningful baselines that could

be independently verified. One stakeholder agreed

that the QCS should drive the TOs to manage their

connections processes to meet their customer

needs.

Seven stakeholders disagreed with our proposal to

reject this ODI-F. These stakeholders shared views

that this ODI-F does have value and would help to

Reject: We remain of the

view that it would be difficult

to assign a meaningful

baseline for this incentive.

We do not agree with NGET

or the other stakeholder who

believe that the ESO, the

UGs or the customer itself

will have sufficient

information to confirm that


118

ODI name and

description

Ofgem’s Draft



Determination

built into the original date.

We did not think that the

ESO or the User Groups

(UG) have the tools to

mitigate against these

risks. Lastly, we thought

that the Quality of

Connections survey (QCS)

should drive performance

improvements for

connections customers.

enable the achievement of Net Zero targets. We

note that some companies questioned whether the

baseline being too difficult to measure is a valid

reason not to progress with this incentive and the

majority of responses requested that we reconsider

our position. Some stakeholders suggested that

gaming of this incentive could be resolved through

confirming genuine acceleration through agreement

from connecting customer or through a third party,

such as the ESO.

NGET disagreed with our proposal to reject this

ODI-F and proposed solutions to address our

concerns around baseline setting. These include:

• Restricting the ODI to connections where there

are existing contracts in place now and there is

no scope for NGET to lengthen the lead time of

connection dates in response to this incentive

• Further information on how NGET have

calculated their baseline lead time for a new

connection so that it can be challenged by the

customer and/or by an independent body, such

as the ESO

• New evidence on what activities NGET will carry

out to shorten the lead time and explain why

these go beyond existing standard practice.

NGET noted that this incentive will encourage risk

taking, which they are less likely to take under

standard commercial arrangements. It also notes

the original connection date

had not been inflated. We

also do not consider that the

suggestions provided by

NGET will safeguard against

this risk.

Generally, we remain of the

view that it is a core activity

of ETO operations to deliver

timely connection dates. We

therefore disagree with NGET

that the incentive could be

limited to existing

connections.

Overall, we think that the

QCS is a better mechanism

for incentivising the ETOs to

manage the connections

process effectively and to

meet their customers’ needs,

including delivering low

carbon connections early,

where appropriate, and

enabling Net Zero targets.

For all of these reasons, we

do not think that it is

appropriate to introduce an

ODI-F in this space.


119

ODI name and

description

Ofgem’s Draft



Determination

that the QCS is not sufficiently targeted to

encourage the risk taking required.

Lastly, following Ofgem’s feedback, NGET removed

the aspect of the proposal which would reward it if

the customer delays the connection date which will

ensure that ODI payments are only received where

there are actual greenhouse gas emissions saved.

RIIO-T2 System

Outage Management

Proposals to Reduce

Constraint Costs: This

was a joint ODI-F

proposed by the ETOs

and ESO for a four-

staged approach to

implementing an ‘on

demand service’ which

will provide flexibility to

the ESO.

Reject: We considered

that there was insufficient

evidence that an incentive

is required to encourage

the use of STCP 11.4. We

encouraged the ETOs to

resolve the barriers that

exist in the procedures

that they have identified.

We received 12 responses to this proposal. The

majority of the responses disagreed with our

proposal and flagged the need for an incentive in

this space.

Please refer to Chapter 2 in the ET Annex to review

a summary of responses to this area.

Accept: We have decided to

set a common ODI-F to

encourage the ETOs to

deliver solutions under

existing STCP 11-4. We will

trial this ODI-F for a period

of two years.

Please refer to Chapter 2 of

the ET Annex for further

details, including our

rationale for this decision.

Table A2.2: NGET's bespoke PCD proposals

PCD name and

description

Ofgem’s Draft


Consultation response summary Ofgem’s Final Determination

Network reinforcements:

NGET proposed to innovate

and invest in the network

reinforcements indicated by

the ESO’s Network Options

Assessment (NOA) process,

increasing boundary


accept this proposal, but to

increase the project-specific

works contained within the

PCD. This would include all the

NOA projects approved by the

ESO.

NGET and various interested

stakeholders agreed that our PCD

approach for baseline projects was

acceptable.

However, a concern was raised

about our proposal to reject NGET’s

volume driver and UCA. This was

Accept: We have decided to accept

NGET’s additions to their baseline and

propose using PCDs, as in DD, for all

baseline projects.

Our concerns around the relationship

between cost and allowance with NGET

UCA is consistent with our position at


120

PCD name and

description

Ofgem’s Draft



capability to facilitate a

changing energy market and

to keep costs down. This

PCD had a value of £507.1m

We also proposed to reject

NGET’s volume driver with a

unit cost allowance (UCA) for

new projects due to the limited

relationship between costs and

allowances at a project level.

Instead we proposed that new

network reinforcement

projects would be put through

the MSIP re-opener.

because they thought the MSIP

reopener would add unnecessary

regulatory burden to the efforts

towards achieving Net Zero.

DD. However, we have decided to

accept NGET’s UCA proposal with a

Delivery Adjustment Factor (DAF) of

50% in addition to the TIM. The use of

the DAF will mitigate a number of the

risks associated with the poor

relationship between cost and allowance

at a project specific level.

Maintaining security of

supply as the energy

system changes: NGET

proposed to invest £31.1m

in protection and control

coordination studies,

changes to settings, and

replacement of relays where

required to maintain

security of supply and

identify future requirements

as fault currents decrease.

Accept: While we proposed to

specify a PCD for this category

of investment, we rejected a

proportion of the requested

funding. This was on the basis

that, in our view, the work

scope is uncertain. We

proposed instead to fund the

system studies required to

ascertain the correct scope of

works, however, proposed to

reject the settings review and

update as our view was that

this is part of business-as-

usual (BAU).

NGET provided additional data to

support their request.

Reject: Based on our decision to

continue with the proposed deduction,

in line with our DD position (see

Chapter 3), we consider that it would be

disproportionate to maintain the PCD

for the studies alone.

As the study work is a prerequisite for

the reopener, we see no need to define

the PCD on this basis.

Facilitating the closure of

conventional generation:

NGET proposed to invest

£134.7m (including indirect

costs) to facilitate closure of

conventional generation and


accept this as we considered

that the needs case for these

works had been made out and

the cost breakdown of works

had been well defined, giving

NGET provided additional cost

breakdown information and

provided example PCD

methodologies, which averaged

costs per site.

Accepted (with amendments): We

have decided to reject the PCD based

on our confidence and acceptance

around the need case for these works,

and the breakdown and estimations of

site costs. We do not believe that a PCD


121

PCD name and

description

Ofgem’s Draft



to secure easements to

maintain grid access.

us confidence around the costs

presented. However, we were

concerned that there is a

significant risk that some

works may be deferred from

RIIO-T2, and therefore

proposed a PCD covering the

proposed sites to manage this

risk.

will provide any meaningful benefits to

the consumer.

Reducing carbon

emissions from

operational transport:

NGET proposed to purchase

and maintain 60% of their

fleet as low-carbon vehicles,

including installing and

maintaining substation

charging for them. PCD

value £47.5m


accept a PCD for £26.74m for

499 Electric Vehicles (EVs) and

the installation of EV charging

infrastructure at 234 sites.

We received four responses, all of

which were supportive of our DD

position. The RIIO-2 Challenge

Group questioned whether NGET

installing the charging infrastructure

could crowd out competition, and a

consumer group sought supported

our Draft Determination provided

the needs case was justified for all

charging points.

Accept: We have decided to implement

the PCD as proposed at DDs. We

consider it appropriate that NGET

installs charging infrastructure for its

own fleet in accordance with its own

operational requirements and we are

satisfied that the needs case for the

proposed investment is justified and

proportionate to current and future fleet

requirements.

SF6 asset intervention

(Non-load related

(NLR)): NGET proposed a

UM to fund a large-scale

programme of intervention

works on network assets

containing and leaking SF6

with an estimated cost of

between £190m and

£35Om.

Accept: We proposed to reject

the bespoke proposal for a UM,

instead proposing to set a PCD

with baseline funding for an

SF6 asset intervention plan.

We received two responses, both of

which were generally supportive of

our proposals.

NGET also submitted its final PCD

asset intervention plan requesting

ex-ante funding of £657.19m,

spread across 3 components.

Accept (amended): We have decided

to allow ex-ante funding of £107m, with

the opportunity for NGET to apply for

further funding through two reopener

mechanisms.

Further detail on our decisions can be

found in Chapter 2 this document.

Facilitating competition:

NGET proposed to deliver


accept an amended PCD for

NGET and another stakeholder

argued that the Pre-Construction

Accept: We have decided to accept this

PCD, including the for the additional


122

PCD name and

description

Ofgem’s Draft



pre consents for projects

which may be applicable for

Ofgem’s late competition

model. PCD value £181.5m

£74.6m and committed to

work with NGET to set defined

outputs for Final

Determinations.

Funding (PCF) we proposed for

NGET in our Draft Determinations

would be insufficient to allow them

to develop the projects that they

needed to during RIIO-2. Responses

particularly focused on the negative

impact this could have on achieving

Net Zero.

projects outlined in the most recent

NOA, which was published after NGET’s

December 2019 Business Plan

submission. See the ET Annex for

details on how our PCF PCDs will

operate and in Chapter 2 of this

document for a project-by-project

breakdown of NGET’s PCF projects.

Optimising with the

Distribution Network

Operators (DNOs): NGET

proposed a £30.7m PCD to

optimise reactive control

with DNOs by identifying

whole system opportunities

and investing in five reactor

units.


accept this PCD, noting that

the needs case for these works

had been well explained and

cost the breakdown of works

had been well defined.

However, we considered that

there is a risk that some works

may be deferred from RIIO-T2

and therefore proposed a PCD

to manage this risk across the

named sites. Our cost

assessment proposed to

remove £5.5m from NGET’s

baseline funding request.

NGET provided responses to these

works, specifically highlighting

where changes were required due to

ESO-driven works.

Accept (amended): We do not believe

a PCD will provide the consumer any

additional protection against the risk

that some works may be deferred. The

ESO provides the rationale for all

investment related to these works and

we expect these to be delivered.

New works will be funded via MSIP.

Optimising with the ESO:

NGET proposed an

allowance of £48.026m

(capex) and £2.325m

(opex), for the installation

and operation of new

system monitoring

equipment.


accept this as NGET presented

a well-justified needs case for

this proposal. However, we

had concerns over the limited

cost analysis and flat spend

programme provided, which

limited our ability to determine

NGET provided additional

information to support the

development of a PCD based on the

flat unit rates on a site basis.

Accept (amended): As these works

are a licence condition we do not see a

PCD bringing any greater a level of

consumer benefit.


123

PCD name and

description

Ofgem’s Draft



the efficiency of the proposal

as we were unable fully to

ascertain the scope of the

proposed interventions. We

therefore considered that a

PCD was required to manage

this capex risk. Our cost

assessment proposed to

remove £7.7m from the

requested baseline funding.

We proposed to allow the opex

costs of £2.325m.

Net-zero capital carbon:

NGET proposed a £2.5m

PCD for offsetting the

emissions it cannot

eliminate technically or cost

effectively.

Accept: We proposed to allow

UIOLI funding of £2.5m

attached to a PCD.

We received responses on this from

a consumer group and NGET, both

of whom supported a UIOLI

mechanism for this cost area.

Accept: We have decided to allow

UIOLI funding of £2.5m mechanism.

However, we do not consider it

necessary to attach this funding to a

PCD. See Chapter 2 of this document

for details.

Black Start capability:

NGET proposed, in addition

to baseline funding, further

funding of £22.2m for

proposed changes driven by

new or updated industry

codes and guidance which

had not been published at

the time of submission of its

Business Plan.

Reject: We proposed to reject

this PCD because the proposal

was not detailed or evidenced

to a sufficient level to enable

our review or approval. We

instead proposed that all Black

Start works, including the

requested baseline funding

that we also proposed to

reject, can be assessed

through the MSIP re-opener.

NGET acknowledged that the new

standard has not been published

and uncertainty remains on the

scale of government mandated

requirements under a new standard.

NGET welcomed Black Start works

being included within the MSIP re-

opener mechanism but raised

concerns on the thresholds and the

timing of the re-opener.

Reject: We have decided to reject this

proposal. The justification and evidence

in support of it remains insufficient. For

this reason, we also do not consider a

PCD would be in consumers’ interests.

We have decided to include this in the

MSIP reopener to enable NGET to seek

funding for this, which will need to be

supported by a more comprehensive

and robust plan, when there is greater

certainty. Further details on the MSIP

reopener is in the ET Annex.


124

PCD name and

description

Ofgem’s Draft



Protection from extreme

weather: NGET proposed a

baseline of £59.8m to

undertake works to protect

substations and routes from

flood risk Updates to the

new ETR 138 standard will

be resolved via a reopener.


this. In our view, the scope of

works within the proposal was

not sufficiently developed to

allow us to determine if the

proposals within the requested

PCD are reasonable. For

substation sites, c.70% of the

named sites had no scope

consideration; for overhead

routes, the scope described

has significant overlap with

other baseline requests and we

could not ascertain the

boundaries between the

proposals.


information to support their

request. We note that the

information provided highlighted

that less survey and development

work had been completed than we

had expected.

Accept (amended): We will not use a

PCD for these works. We have reduced

our DD funding proposal on the basis

that NGETs justification for additional

expenditure was not based on as

surveyed information. Therefore, if we

elected to utilise a PCD it may not be of

benefit to consumers.

We have decided to include this in MSIP

reopener to enable NGET to seek

funding for this, which will need to be

supported by a more comprehensive


certainty. Further details on the MSIP

reopener is in the ET Annex.

A resilient operational

telecommunication

infrastructure: NGET

proposed a £241m PCD to

continue to develop a low-

risk operational telecoms

infrastructure. This includes

the replacement of

[redacted] of Fibre Wrap

and Telecoms equipment at

274 sites.

Reject: We did not fully

accept the need case for Optel

Refresh works due to concerns

over the deliverability of the

proposal and NGET having not

fully explained the interaction

or dependency on condition

related reliability issues that it

states exist. While we agreed

that an Optel Refresh will

ultimately be required, we did

not accept that NGET made

the case for this to be

completed during RIIO-2. As

such, we proposed baseline

funding for only the final two

NGET provided a significantly

increased level of justification for

the requested funding, which

included more targeted justification

for the timing of works.

Accept (with amendments): While

NGET did provide additional

justification, we were unable to define

clear volumes for two major sections of

the proposal (Fibre Wrap Replacement

and Telecoms replacement).

For this reason, we have decided to

reject NGET’s proposal of a PCD but to

include a bespoke reopener which will

enable NGET to seek funding for Fibre

Wrap replacement, which will need to

be supported by a more comprehensive


certainty.


125

PCD name and

description

Ofgem’s Draft



years of RIIO-2 to enable

NGET to begin this work.

Substation equipment

(NLR): NGET proposed a

methodology to monetise

the network risk of some

non-lead substation assets

categories, and to reduce

the risk on those non-lead

assets in RIIO-T2.


this as, in our view, the

underlying level of data NGET

held was not sufficient to

enable monetised risk to be

fully considered.


support its NLR capex request.

Reject: While NGET’s additional data

has resulted in an increase in in our

overall funding position (as discussed in

Chapter 3), we do not consider that

NGET has sufficient data to operate as

monetised risk system for non-lead

assets in RIIO-T2.

This may be a development for future

regulatory periods.



methodology to monetise

the network risk of


assets and to reducing the

risk on those assets in RIIO-

T2.


this as, in our view, the work

scope is uncertain. We

proposed to fund the system

studies required to ascertain

the correct scope of works.


support its NLR capex request.

Reject: While NGET’s additional data

has resulted in an increase in our NLR

funding position (as discussed in

Chapter 3), we do not consider that

NGET has sufficient data to operate as

monetised risk system for non-lead

assets in RIIO-T2.

This may be a development for future

regulatory periods.

Overhead line (OHL)

Foundation replacement


£53m PCD to replace a

number of foundations in

high risk areas.


this due to concerns around

the lack of data driving the

interventions.

NGET provided additional data in

support of its steelwork replacement

and foundation replacement

requests.

We note that in both categories

(steelwork & foundations) the level

of data to support the proposed

interventions as proposed by NGET

was insufficient.

Reject: We have decided to reject

NGET’s PCD proposals. We have

approved 30% of the baseline funding

for Steelworks and Foundations to allow

NGET to undertake both interventions

and surveys to lead up to a reopener.

We have approved 30% of the request

funding for these works in baseline for OHL steelwork

refurbishment (NLR):

NGET proposed a £92m PCD


this as we had significant

concerns around the


126

PCD name and

description

Ofgem’s Draft



to refurbish the equivalent

of [redacted] of steelwork.

classification of tower steel

work grade 4. In addition, we

believed that the recovery of

grade 4 steel in combination

with the new Tower Paint used

by NGET could lead to a

significant unjustified

outperformance.

T2, we expect NGET to submit a

reopener to clarify their position.

Table A2.3: NGET's CVP proposals

NGET is not eligible to receive rewards under the BPI stage 2. For completeness, this has been assessed and our Final Determination and

rationale is set out below.

CVP name and

description

Ofgem’s Draft Determination

summary

Consultation response

summary

Ofgem’s Final Determination

Caring for the natural

environment: Increasing

the natural capital value

of all of its non-

operational land by 10%

during RIIO-2, delivering

£14.67m benefit.

Accept consumer value but no

reward*: We proposed to accept

this on the basis that caring for

the natural environment goes

beyond BAU and provides

demonstrable consumer benefit.

However, due to our proposal that

NGET failed Stage 1 of the BPI, it

would not be eligible to receive a

CVP reward.

We received 4 consultation

responses from an

environmental stakeholder, a

consumer group, the Enhanced

Engagement group and NGET,

all of whom were supportive of

our DD position.

Accept consumer value but no

reward*: Due to failing BPI stage 1,

NGET is not eligible to receive any reward

from CVPs at stage 2.

We are, however, confident that this

output will still be delivered as NGET is

already incentivised in this area through

the environmental incentive ODI-F and

therefore consumers will not incur any

detriment from our decision to exclude

NGET from CVP rewards.


127

CVP name and

description


summary


summary


Tougher Energy Not

Supplied (ENS) target:

Committing to a ENS

target that is 45% lower

than its RIIO-T1 target at

no additional cost to

consumers, delivering

£2.68m benefit through

fewer loss of supply

events, benefitting

consumers, in particular

vulnerable consumers

who may be worse

affected by a power cut.


this because it was not clear how

NGET’s proposed CVP went

beyond BAU. We set out that

NGET’s actual performance in

RIIO-1 and the step-change in its

ENS management should be

reflected in target-setting, which

should lead to a significantly more

challenging RIIO-T2 target when

compared to RIIO-1.

NGET considers that this CVP

should be accepted because it

represents an increase in service

level compared to the existing

level and will be delivered at the

same or existing cost to

consumers. NGET argue that an

ENS target that is 20% lower

than the RIIO-T1 target is more

reflective of a BAU approach.


CVP. We consider that the increase in

service level that NGET proposed is not

enough to qualify for a CVP when

compared to the actual service level

consumers have had over RIIO-T1. On

average, NGET has outperformed its RIIO-

T1 ENS target by 88%. All else being

equal, it is difficult to see how embedding

less than half of the improvement into the

target for RIIO-2 could reasonably be

considered BAU.

Developing

alternatives to SF6:

Undertaking an

innovation programme

and activities to develop

SF6 alternatives,

delivering £13.1m

benefit, through lower

carbon emissions.


this proposal due to a lack of

specific deliverables and cost

breakdown. We also considered

there to be other more

appropriate routes for innovation

funding, such as the Network

Innovation Allowance (NIA).

There is also potential overlap

with the proposed PCD for NGET's

SF6 asset intervention

programme, discussed above.

NGET asked for this to be

reconsidered, unless agreement

with Ofgem can be reached on a

PCD for SF6 asset intervention.


CVP. The concerns we set out in Draft

Determinations remain.

Optimisation of

harmonic filtering:

Changing the approach to

Reject: We supported the

principle of within-period funding

and consider there is merit in

taking a more coordinated

NGET considered that the CVP

should be accepted and provided

more evidence in support of

their proposal.

Reject: We acknowledge the additional

evidence provided by NGET and we

maintain our position that there should be

a mechanism for in period funding to


128

CVP name and

description


summary


summary


harmonic filtering35F

36 so

that NGET carry it out

rather than customers,

delivering £18.82m

benefit through lower

bills.

approach to harmonic filtering.

However, we were not convinced

that this was beyond BAU good

practice. We requested further

analysis and robust evidence to

indicate the frequency of an ETO-

led approach over the RIIO-T2

period, the probability of the

approach being used and the level

of benefit that can be realised

relative to a customer-led

approach. We also sought views

on the wider administrative

process to be undertaken to

facilitate the implementation of

the proposed solution.

Specifically, further detail on the

nature, scope and timing of

necessary code changes to be

implemented (including change to

the Grid Code and Transmission

Network Use of System charging

methodology).

facilitate a coordinated approach to the

installation of harmonic filtering where

there is clear justification for doing so.

We do not believe that a CVP is the

appropriate vessel for this funding route.

We propose utilisation of the MSIP

mechanism to access funding when the

nature, scope and timing of necessary

code changes to be implemented

(including change to the Grid Code and

Transmission Network Use of System

charging methodology) are better

understood and articulated.

Supporting local urban

communities: Proposing

a new, innovative scheme

to improve assets in

urban areas, delivering

Reject: This assumes additional

consumer value beyond the

proposed £50m Urban

Improvement Provision UM,

however, it was not clear on what

NGET considers that we should

accept the proposal because:

• The RIIO-2 Challenge Group

(CG) thought the proposal

has merit


CVP - the aims/objectives of the proposed

scheme are poorly specified and the

consumer benefit of the projects that

would be taken forward is unknown.

36 Harmonics are distortions in power systems, which can damage equipment. There are set limits to permissible harmonic distortion, requiring filtering equipment. Currently,

customer connections must provide harmonic filtering.


129

CVP name and

description


summary


summary


£22.58m benefit, most

directly to those living in

the urban areas, which

would include vulnerable

consumers.

NGET intends to spend this

money, therefore it was not

possible to quantify the consumer

value of this proposal. We did not

agree with the justification for an

assumed 50% additional social

benefit more than cost for any

money spent on supporting local

urban communities as there was

no reliable data to support it. We

also proposed to reject the

bespoke UM to which this CVP

relates.

• It goes beyond BAU because

stakeholders wanted urban

consumers to benefit as do

rural consumers from the

Visual Impact Provision

• Due to the clawback

provisions, consumers

cannot lose if the benefits do

not materialise.

Therefore, we consider that the proposal is

too speculative and does not justify a

£50m allowance in RIIO-T2, even with the

option of a potential claw back.

Deeside innovation

centre: Expanding and

opening up Deeside

innovation centre to allow

cross-sector research and

trials of technologies to

allow whole-system

innovations to be applied

more quickly, delivering

£26.13m benefit, through

lower bills and lower

carbon emissions.

Reject: We expect innovation

which was funded in RIIO-1 to be

rolled out as BAU in RIIO-2. As

the centre opened in RIIO-1 with

the intention for the facility to be

used by wider industry, NGET has

not demonstrated that this

proposal goes beyond BAU. We

did not agree with the assumption

the innovation trials will be

successful and result in carbon

savings.

NGET stated that this CVP

should be accepted because the

Deeside innovation centre is

unique and their proposal to

open it up to third parties is

innovative. It also stated that

clawback provisions for CVPs

mean that money would be

refunded to consumers if

benefits do not arise from

innovation trials. In response to

innovation questions, NGET also

requested clarity on whether


CVP. We do not think additional funding

for the operation of the Deeside innovation

centre should be provided at this time,

beyond funding provided by the RIIO-1

Network Innovation Competition project

(OSEAIT) which funded the development

of the centre.36F

37 For the reasons set out in

the Draft Determination, we do not believe

the proposal goes beyond BAU

expectations of NGET. In addition, the

benefits of the centre are uncertain

considering that the OSEAIT project is

37 The development of the Deeside innovation centre was funded via the Offgrid Substation Environment for the Acceleration of Innovative Technologies (OSEAIT) Network

Innovation Competition project in 2015. Fuller details on the project are available in its amended Project Direction published in December 2018; https://www.ofgem.gov.uk/publications-and-updates/network-innovation-competition-amended-project-direction-oseait

https://www.ofgem.gov.uk/publications-and-updates/network-innovation-competition-amended-project-direction-oseait


130

CVP name and

description


summary


summary


funding for the facility could be

provided via the RIIO-2 NIA.

A response from an academic

also expressed disappointment

at the rejection of this CVP,

noting it may result in lost

benefits from funds previously

invested in innovation.

experiencing delays and is not yet

complete.

We do, however, note that individual

innovation projects carried out at the

centre in the future may be eligible for

NIA funding during RIIO-2.

Whole system

approach to low-

voltage substation re-

builds: Saving

consumers money by

finding alternative whole-

system solutions for

managing faults at Grid

Supply Points (GSPs),

delivering £9.48m


bills.

Reject: NGET provided

insufficient justification that these

alternative solutions go beyond

BAU. We considered in this

instance that the basic

optioneering for these works

should include interfacing with

DNOs to optimise their networks

to reduce fault current through

alternative running arrangements.


information to support their

original position.


CVP as these works are BAU and we

expect NGET to coordinate and manage

their network interfaces in an economic

and efficient manner.

SO:TO optimisation:

Proposing an approach to

offer flexible options to

the ESO to enable it to

reduce constraint and

whole-system costs for

consumers, delivering

£84.88m benefit, through

lower bills.

Reject: There are multiple

existing tools in place to ensure

sufficient engagement and

collaboration between the ESO

and NGET. We considered that

this CVP could create a create

inefficiencies between the

collaboration of the ETOs and

ESO. We also did not think that

We received a number of

responses that disagreed with

our position. They noted that

incentives like this are required

to encourage the ETOs to

prioritise a way to enable local

generators to remain operating.

One respondent supported our

proposal to reject this CVP, as


CVP. We have decided to accept a

common ODI-F with similar elements that

will apply to all ETOs. Accordingly, there is

no need for this bespoke proposal. For

further information please refer to “RIIO-

T2 System Outage Management Proposals

to Reduce Constraint Costs (ODI-F)” in the

ODI table above.


131

CVP name and

description


summary


summary


we have the tools to measure the

impact of the delivery of this CVP.

they are concerned that these

proposals could risk delays to

short-term projects. One

respondent notes that there is a

need to have incentives to

investigate and propose NOA

reinforcements that deliver

congestion relief.

Whole-system

alternatives to reactor

investments: Finding

alternative whole-system

solutions to reactor

investments to address

reactive power issues,

delivering £16.62m


bills.

Reject: Insufficient justification

was provided to suggest that

these alternatives go beyond BAU.

We noted that these works will be

heavily influenced in future by the

ESO’s actions in potential

Pathfinder Projects for Reactive

Control. We proposed to approve

all of the reactor works NGET

proposed in its Business Plan.


support its position.


CVP as these works are considered BAU.

NGET at present work with the ESO to

establish and support the ESOs

requirements for reactive control on their

network.

Table 3: NGET’s bespoke UM proposals

UM name and description Ofgem’s Draft



summary


Boundary capability: NGET

proposed a volume driver

mechanism to address the

uncertainty around the future

boundary capability projects

below £100m whose needs

Reject: We proposed instead to

use PCDs for any non-delivery

of projects accepted in baseline

and the MSIP re-opener to

provide funding for future

projects.

NGET were supportive of a PCD

approach for baseline projects

identified through the NOA

process but disagreed with the

proposed funding approach for

non-baseline boundary capability

Accept (amended): Further

constructive engagement with NGET

has led to revisions in the approach

to manage the uncertainty associated

with future investment changes

driven by the ESO’s annual NOA


132




summary


case may emerge during RIIO-

ET2.

projects within the RIIO-T2

period. For further detail on

NGET’s response please see

Chapter 4 of this document.

process. For further information on

our decision please see Chapter 4 of

this document.

Facilitate competition (pre-

consents): NGET proposed a

volume driver to adjust its

allowances for the delivery of

planning consents for

contestable projects.

Reject: We set out that we did

not consider that a volume

driver approach is appropriate

for these types of costs, given

the volatility with which the

'need' for the projects can

change. We considered that the

policy intent of this proposal is

covered by our proposed

common Pre-Construction

Funding (PCF) UM.

Responses in this area mostly

focussed on our overall approach

to uncertain PCF expenditure,

rather than discussing the

specifics of our DD position on

NGET’s proposed approach. These

responses are summarised in the

ET Annex.

Reject: We do not consider there are

robust enough benchmarks against

which a volume driver for PCF could

be established. Our approach to

uncertain PCF, set out in Chapter 4 of

the ET Annex, strikes a better

balance between protecting

consumers and enabling investment.

Generation and demand

connections: NGET proposed

a volume driver mechanism for

costs associated with

generation and demand

connections.

Accept: We proposed to accept

this UM with adjustments to

form a common volume driver

design for all three ETOs using

a consistent approach in the

level of disaggregation applied

to the volume driver, but

providing rates for different

activities specific to each

company to reflect the different

connections and network

challenges that each ETO has.

Three respondents disagreed with

our position. They thought that

the proposed mechanisms are

poorly designed, would provide

inadequate funding, and likely

delay projects that are critical to

the achievement of Net Zero.

Accept (amended): We remain of

the view that a common form of

volume driver with company-specific

parameters is appropriate. However,

following further engagement with

the companies we have made several

amendments to the common volume

driver design for all ETOs. Please see

ET Sector Annex, Chapter 4 for

further information.

System operability

(voltage): NGET proposed an

up/down re-opener to manage

uncertainty in the provision of

Accept as common UM: We

proposed to include this under

the MSIP re-opener, common to

all ETOs.

Respondents broadly agreed with

our proposal to include this in the

MSIP re-opener, though raised

concerns with the materiality

Accept as common UM: We have

included this area in the MSIP re-

opener, common to all ETOs. See

Chapter 4 of the ET Annex for details.


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summary


voltage support on the

transmission network as

requested/delayed/cancelled

by the ESO.

thresholds for and timing of, that

re-opener. These are addressed in

Chapter 4 of the ET Annex.

Harmonic filtering: NGET

proposed a UM to allow the

coordination of harmonic

design and the building of

cheaper harmonic filters

following engagement and

agreement with customers.




all ETOs.





thresholds for, and timing of, that







System operability (other

ESO requirements): NGET

proposed a UM to cover a

situation where an ESO Whole

System assessment indicated

that a transmission solution

would be best for consumers.




all ETOs.












Extreme weather: NGET

proposed a UM to manage

additional requirements for

site protection that may arise

from changes to ETR138 37F

38

within the RIIO-T2 period.




all ETOs.












Black Start: NGET proposed a

UM to manage changes to site

requirements that may occur

in period due to the review of




all ETOs.









38Engineering Technical Report (ETR) 138 Resilience to Flooding of Grid and Primary Substations is industry guidance published by the Energy Networks Association


134




summary


Black Start standards currently

underway by BEIS.




Low voltage substation re-

builds (embedded

generation): NGET proposed

a volume driver to provide

funding for the extent of low

voltage rebuilding (substations

or individual assets) required

due to changes in the level of

embedded generation

connecting to the network

identified after a whole system

assessment (and

recommendation that a

transmission solution is

required).

Reject: NGET did not

demonstrate that the

requirement to maintain fault

clearance capacity is clearly

beyond BAU. Further

information was requested from

all ETOs on the wider

implications of the fault level

issue.

NGET disagreed with our DD

position and argued that the UM

should be accepted.

Reject: We acknowledge NGET’s

response, but our position has not

changed. We do not believe there is

sufficient evidence yet to class these

proposed investments as anything

other than Business as Usual. We

also acknowledge that this may

change as the price control

progresses, and so while we have

rejected the bespoke UM mechanism,

we have made provision for funding

to be requested through the MSIP

reopener mechanism should the

requirements and justification for

these investments being beyond

Business as Usual become clearer.

Protection and control: To

manage the implications of

changes in inertia on

protection systems, NGET

proposed to undertake a

comprehensive investigation of

device performance to allow

for mitigations to be defined.

Based on the results of the

study, NGET proposed a

mechanism to fund the

potential replacement of relay

Reject: We considered relay

monitoring and setting changes

to form part of a rolling

programme of works expected

to be performed at regular

intervals as part of BAU. There

was insufficient justification

that these proposals go beyond

BAU and available funding

routes. We proposed baseline

funding for further study works.


position. It argued that

adjustments to settings on control

devices, particularly the

southwest region of England &

Wales, is required to ensure

continued effective operation

across all times of year in the

RIIO-T2 period. NGET

recommended re-instatement of

£5m to facilitate this work in


the proposal for additional funding for

the reasons that we set out in the

DDs.

Based on the information provided,

we are unable to confirm the scale of

the relay setting changes required

and the timescale of changes

required to address the anticipated

change in fault levels associated with

future increases in renewable

connections.


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summary


settings at an initial estimated

cost of £90m.

addition to the baseline funding

for the study.

The funding provided will allow NGET

to perform “system wide” protection

coordination studies and analysis of

the consequences of fault level

change.

We have retained this area in the

MSIP re-opener to provide a potential

funding route for further relay

settings changes.

Ensuring a resilient

electricity network: NGET

proposed a UM to cover works

to enhance the overall levels of

resilience in the network that

are the result of engagement

with its stakeholders or of

additional threats that could

arise in RIIO-2.

Reject: NGET did not provide

sufficient justification that the

proposed enhancements to the

overall levels of resilience were

over and above work that

would be classified as BAU.


position and provided

commentary in support of their

proposal.

Reject: We acknowledge the

response from NGET but maintain our

position that this is little more than a

catch all bucket for currently

undefined projects. This is not in the

spirit of the bespoke mechanism. We

would expect the give and take of

BAU activities to managed within the

TOTEX allowance and Sharing Factor

provisions within the agreed

settlement.

SF6 asset intervention:

NGET proposed a UM to cover

the costs of a large-scale

programme of intervention

works on network assets

containing and leaking SF6.

Reject: We proposed to set a

PCD instead subject to NGET

submitting a well-justified and

costed asset intervention

programme plan.

We received no specific responses

on this bespoke proposal.

Responses linked to the PCD

proposal are covered in the table

2 of this appendix.

Reject: We are introducing a PCD in

this area instead of the requested

UM. Further detail on this can be

found in Chapter 2 of the NGET

Annex.


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summary


Urban improvement

provision: NGET proposed a

£50m allowance over RIIO-2

for projects that improve

transmission assets (e.g.

reduce visual impact) or public

spaces in the top 30 per cent

most deprived urban areas.


this proposal because NGET had

not provided sufficient evidence

of need, or that it would be in

the interests of consumers,

particularly given the cost of

the proposed allowance.

Only NGET responded to our

consultation position. It noted

that the proposal had come from

an external stakeholder group and

had been supported by an

external focus group. NGET was

unable to provide evidence of

benefit at this stage as the social

and economical benefits of each

project taken forward under the

provision would need to be judged

by a panel of NGET’s

stakeholders.


this proposal, for the reasons set out

in DDs. At a time when there are

strong policy drivers for significant

additional network investment to

facilitate the UK’s Net Zero objective,

we consider that NGET’s justification

for a £50m allowance in RIIO-T2 is

insufficient.

Net zero: NGET proposed a

re-opener to account for

changes during RIIO-2 related

to the UK’s Net Zero

ambitions.

Reject: We did not consider it

necessary to have company-

specific re-openers related to

the UK’s Net Zero ambitions.

This was because we proposed

to introduce a system-wide net

zero re-opener in the price

controls spanning the gas and

electricity sectors so that these

can respond flexibly to

changing technological and

policy developments in the path

to Net Zero.

NGET did not respond specifically

to the consultation position to

reject the company-specific

reopener. It did respond on our

proposed approach to a system

wider Net Zero re-opener

discussed in the DD Core

Document.

For further information, please

refer to Chapter 8 of the Core

Document.

Reject: We have decided to

implement a system-wide Net Zero

reopener so that the networks can

respond to changing technological

and policy developments on the path

to Net Zero.

For further information, please refer

to Chapter 8 of the Core Document.

Innovation plan: NGET

proposed a re-opener in 2022

to, if necessary, change its

innovation plan to respond to

the fast-changing nature of


proposed to provide NGET with

NIA funding and access to the

Strategic Innovation Fund.

These would enable NGET to

There were no direct responses to

our Draft Determination position

on this bespoke UM proposal.


decided to provide NGET with NIA

funding and access to the Strategic

Innovation Fund. This provides NGET

flexibility to respond to innovation


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summary


decarbonisation and to the

changing needs of its

stakeholders.

respond flexibly to energy

system transition innovation

challenges during the course of

the RIIO-2 price control.

challenges as they arise, and

potentially secure additional

innovation funding, and therefore no

bespoke UM is required. Please see

Chapter 5 of this document and also

Chapter 8 of the Core Document.

Real price effects (RPEs)

for plant, materials and

equipment: NGET proposed

the use of ex-ante RPEs to

reflect its view of the impact of

inflation (beyond CPI) on the

main cost drivers within its

business.


NGET’s proposals and instead

to apply our view of appropriate

RPEs, but as decided in the

SSMD, these will not be on an

ex-ante basis but will be trued-

up through the annual iteration

process.

NGET broadly agreed with

Ofgem’s proposals for RPE

allowances. However, it still

considered a fixed ex-ante

approach more appropriate for

labour.


this proposal, for the reasons set out

in DDs. Further detail on this can be

found in Chapter 5 of the Core

document.